The monthly income from a piece of commercial property is ?$1,400 ?(paid as a lump sum at...

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Finance

The monthly income from a piece of commercial property is
?$1,400
?(paid as a lump sum at the end of the? year). Annual expensesare
?$2,000
for upkeep of the property and
?$900
for property taxes. The property is surrounded by a securityfence that cost? $4,000 to install four years ago. Assume 52 weeksin a year and? end-of-year cash flows.
a. If
i=15?%
per year? (the MARR) is an acceptable interest? rate, how muchcould you afford to pay now for this property if it is estimated tohave a? re-sale value of
?$140,000
ten years from? now?
b. Choose the correct cash flow diagram for this situation. Usethe viewpoint of the buyer.
c. Based on this? situation, give examples of opportunitycosts.
d. Based on this? situation, give examples of fixed costs.
e. Based on this? situation, give examples of sunk costs.
f. If the
15?%
interest had been a nominal interest? rate, what would thecorresponding effective annual interest rate have been with?bi-weekly (every two? weeks) compounding?

Answer & Explanation Solved by verified expert

3.6 Ratings (446 Votes)

a Property price to be paid today 104367Annual income16800Annual expense for upkeep of property2000Annual property tax900Total annual expense2900Total annual cash See Answer

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The monthly income from a piece of commercial property is?$1,400?(paid as a lump sum at the end of the? year). Annual expensesare?$2,000for upkeep of the property and?$900for property taxes. The property is surrounded by a securityfence that cost? $4,000 to install four years ago. Assume 52 weeksin a year and? end-of-year cash flows.a. Ifi=15?%per year? (the MARR) is an acceptable interest? rate, how muchcould you afford to pay now for this property if it is estimated tohave a? re-sale value of?$140,000ten years from? now?b. Choose the correct cash flow diagram for this situation. Usethe viewpoint of the buyer.c. Based on this? situation, give examples of opportunitycosts.d. Based on this? situation, give examples of fixed costs.e. Based on this? situation, give examples of sunk costs.f. If the15?%interest had been a nominal interest? rate, what would thecorresponding effective annual interest rate have been with?bi-weekly (every two? weeks) compounding?