Professional Properties is considering remodeling the office building it leases to Heartland Insurance.The remodeling costs are.estimated at $2.8 million.If the building is remodeled,Heartland Insurance has agreed to pay an additional $820,000 a year in rent for.the next five years.The discount rate is 12.5 percent.What is the benefit of the remodeling project to Professional Properties?
A)$119,666.04
B)-$89,072.00
C)$105,214.70
D)$108,399.15
E)-$111,417.03

Question

Quizplus · Accepted Answer

The benefit is calculated by finding the present value of the additional rent payments and subtracting the remodeling costs. The present value of the rent payments is $2,919,666.04, and subtracting the $2.8 million cost gives a net benefit of $119,666.04.

Professional Properties Is Considering Remodeling the Office Building It Leases