Bandal Corporation wishes to purchase an apartment complex that provides annual cash flows from rental property of $2,000,000. Rental increase is approximated at 2% per year into the foreseeable future. If Bandal's return requirement is 10%, determine the value of the apartment complex.

Question

Quizplus · Accepted Answer

The value of the apartment complex can be calculated using the Gordon Growth Model (a form of the Dividend Discount Model), which is: Value = Cash Flow / (Required Return - Growth Rate). Here, Value = $2,000,000 / (0.10 - 0.02) = $25,000,000.

Bandal Corporation Wishes to Purchase an Apartment Complex That Provides