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You have an investment opportunity to purchase a retail complex. You have an interested tenant...

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Finance

You have an investment opportunity to purchase a retail complex. You have an interested tenant who will generate $22,000 per year in cash flows for four years. At the end of the four-year period, you anticipate selling the building for $550,000.

a) How much would you be willing to pay for the building? Assume the owners required return is 8%.

b) If the building is being offered for sale at a price of $450,000, would you buy the building and what is the added value generated by your purchase?

c) Now, assume you learn that because of changes in the outlook of economic conditions the owners required return is 10%. How much would you be willing to pay for the building? With the same offer of $450,000, would you buy the building?

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