An investor agreed to sell a warehouse 5 years from now to the tenant who currently rents the space.The tenant will continue to pay $20,000 rent at the beginning of each year including year five in which he will purchase the building for an additional $150,000.Assuming the investor's required rate of return is 10%,how much is this deal presently worth to the investor who was willing to sell?
A)$168,953.93
B)$241,451.07
C)$363,678.50
D)$1,032,475.67

Question

Quizplus · Accepted Answer

To determine the present value of this investment, we need to calculate the present value of the annual rent payments for the next five years and the present value of the purchase price in year five. Using a financial calculator, we can determine that the present value of the rent payments is $84,209.46, and the present value of the purchase price is $84,744.47. Adding these values together, we get a total present value of $168,953.93.

An Investor Agreed to Sell a Warehouse 5 Years from Now