You Are Considering a Luxury Apartment Building Project That Requires

You are considering a luxury apartment building project that requires an investment of $12,500,000. The
building has 50 units. You expect the maintenance cost for the apartment building to be $250,000 in the first
year, $300,000 in the second year, and will continue to increase by $50,000 in subsequent years. The cost to hire a
manager for the building is estimated to be $80,000 per year. After five years of operation the apartment
building can be sold for $14,000,000. What is the annual rent per apartment unit that will provide a return on
investment of 15%? Assume the building will remain fully occupied during the five-year ownership. (Do your
analysis before tax basis.)