Question

5 of 100

Answer 1

The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.

What do you mean by investment?

Investment refers to the dedication of an asset to acquire growth in value over a duration of time. In finance, the motive of making an investment is to generate a return from the invested asset.

As per the information,

The vacancy rate is given is 5%

The occupancy rate is 100 - 5= 95%

$\rm\,The\,Net \,Income = Occupancy \, Rate \times Income - Expenses\\\\ \rm\,The\,Net \,Income = (95\% \times 3,600 \times 12) - 8,640\\\\ \rm\,The\,Net \,Income = \ 32400$

Now, if it is assumed that the income is earned forever, then the present value of the income will be

PV of net income = A/r

A- 32400 , r - 12%

                           $\rm\,PV = \dfrac{32400}{0.12}\\\\\\PV = \ 270000$

Hence, The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.

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