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You are considering the purchase of a small retail shopping complex that will generate net cash...

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Finance

You are considering the purchase of a small retail shoppingcomplex that will generate net cash flows each of the next 15years, starting at $500,000 in Year 1. You normally demand a 12%rate of return on such investments. Future cash flows after year 1are expected to grow with inflation at 5% per year. How much wouldyou be willing to pay for the complex today if it will have to betorn down in 15 years, and the land could be sold for a net amountof $4 million in year 15?

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Value of an Asset PV of cash flows from    See Answer
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