Question

A small office building produces NOI of $8,995 per year. We intend to buy the property, if the price is right, and hold it for four years. At that time (EOY 4) we believe we can sell the property for $197,000. If we require an 8% ROA, what is the most we should pay now for this investment?
A. The NPV is negative, so reject the investment.
B. The NPV is positive, so invest.
C. The NPV is greater than the NOI, so invest.
D. The GPI is greater than the NOI, so invest.
E. The NPV is greater than the OPX, so invest.

Answer 1

Answer:

Option B is correct.

The NPV is positive, so invest.

Explanation:

Year Cash Flow

0          -160000

1            8995

2             8995

3             8995

4           205995

$13,512.46