Homework Help Question & Answers

Step by step solution needed for the question and with the answer thanks ☺ An investor purchased, for an initial cost o...

An investor purchased, for an initial cost of £9.5 million, an office block to be rented out to other businesses. The investo

Step by step solution needed for the question and with the answer thanks ☺

An investor purchased, for an initial cost of £9.5 million, an office block to be rented out to other businesses. The investor spent a further £2 million on renovating the building three months after purchase An agreement has been made with the tenant who will start using the office block exactly half a year after the purchase date. The tenant will pay rent to the investor for ten years and will then immediately purchase the building from the company for £15.5 million. The first year's rent has been set at £760,000 per annum payable half-yearly in advance. The agreement states that, at the start of every second year (from the start of the rental period), the annual rent will increase by a rate of 5.5% per annum on a compound basis Assuming that rental income is received as expected and the company makes a rate of return of 8% per annum on the investment, calculate the investor's present value of the proceeds, in millions, from this project at the time of purchase. (Total 14 marks]
0 0
Next > < Previous
ReportAnswer #1
Present Value (PV) of Cash Flow:
(Cash flow)/((1+i)^N)
i=discount rate=Rate of return =8%=0.08
N=Year of Cash flow
N CF PV=CF/(1.08^N)
Year Cash Flow CALCULATIONS Present Value
Initial Cash Flow at year 0 0 -£   9,500,000 -£       9,500,000
Cash flow at year 0.25(after 3 months) 0.25 -£   2,000,000 -£       1,961,887
First half yearly rent in advance 0.5 £        380,000 (760000/2) £            365,655
2nd installment of first year rent 1 £        380,000 £            351,852
First installment of second year rent 1.5 £        380,000 £            338,570
2nd installment of second year rent 2 £        380,000 £            325,789
First installment of third year rent 2.5 £        400,900 (760000*1.055)/2 £            330,732
2nd installment of third year rent 3 £        400,900 £            318,247
First installment of fourth year rent 3.5 £        400,900 £            306,234
2nd installment of fourth year rent 4 £        400,900 £            294,673
First installment of fifth year rent 4.5 £        422,950 (400900*1.055) £            299,145
2nd installment of fifth year rent 5 £        422,950 £            287,852
First installment of sixth year rent 5.5 £        422,950 £            276,986
2nd installment of sixth year rent 6 £        422,950 £            266,530
First installment of Seventh year rent 6.5 £        446,212 (422950*1.055) £            270,574
2nd installment of Seventh year rent 7 £        446,212 £            260,360
First installment of eighth year rent 7.5 £        446,212 £            250,532
2nd installment of eighth year rent 8 £        446,212 £            241,074
First installment of ninth year rent 8.5 £        470,753 (446212*1.055) £            244,732
2nd installment of ninth year rent 9 £        470,753 £            235,494
First installment of tenth year rent 9.5 £        470,753 £            226,604
2nd installment of tenth year rent 10 £        470,753 £            218,050
Cash Flow from Sale of the building 10 £ 15,500,000 £        7,179,499
SUM £        1,427,298
Net Present value of proceeds £          1,427,298
Net Present value of proceeds £                     1.43 million
Know the answer?
Add Answer of:
Step by step solution needed for the question and with the answer thanks ☺ An investor purchased, for an initial cost o...
Your Answer: Your Name: What's your source?
Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Step by step solution needed for all parts of the question and each part with answers thanks ☺ A mining company conside...

    Step by step solution needed for all parts of the question and each part with answers thanks ☺ A mining company considers opening a new excavation site. The project requires an investment of £25 million at the outset, followed by £17 million in 15 months' time. It is expected that the new site will provide income over a 30 year period starting from the end of the second year. Net income from the project will be received continuously at a...

  • I am having a hard time with this and was wondering if anyone could help me. My book has not...

    Topic 4: Commercial Lease AgreementExhibit D: Commercial Lease AgreementCOMMERCIAL LEASE AGREEMENTThis Commercial Lease Agreement (Lease) is entered into on this ____ day of ___________, 20__, by and between __________________ (Landlord) and _________________(Tenant). Landlord is the owner of land and improvements whose address is: __________________________________. Landlord makes available for lease a portion of theBuilding designated as ___________________ (Leased Premises.)Landlord desires to lease the Leased Premises to Tenant, and Tenant desires to lease the Leased Premises from Landlord for the term, at...

  • Create General Journal Entries for the following entries. Here is what it should look like in Ex...

    Create General Journal Entries for the following entries. Here is what it should look like in Excel (as an example): As for the previous month's entries, here they are with the General Journal I made. BEACON LUMBER, MONTH OF DECEMBER Dec Beacon purchases a general liability insurance policy for $1,200, paying cash. The term of the policy is one year, from Dec 1, 2009 through Nov 30, 2010. Dec Beacon purchases a forklift for S10,000, paying half in cash and...

  • Create General Journal Entries for the following entries. Here is what it should look like in Ex...

    Create General Journal Entries for the following entries. Here is what it should look like in Excel (as an example): As for the previous month's entries, here they are with the General Journal I made. BEACON LUMBER, MONTH OF DECEMBER Dec Beacon purchases a general liability insurance policy for $1,200, paying cash. The term of the policy is one year, from Dec 1, 2009 through Nov 30, 2010. Dec Beacon purchases a forklift for S10,000, paying half in cash and...

  • Can you check my answers? here is my answer to this question Im not sure regarding...

    Can you check my answers? here is my answer to this question Im not sure regarding the calculations I had another tutor answer but I can't seem to respond to check my work or find out what or how mine are different technology in the market. Variable production costs are estimated to be $45,000 per unit for the entire life of the project. ACC00152 Business Financet You are working in the finance department of Space Sky Flight Ltd (SSF). The...

  • CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in...

    CASE 1-5 Financial Statement Ratio Computation Refer to Campbell Soup Company's financial Campbell Soup statements in Appendix A. Required: Compute the following ratios for Year 11. Liquidity ratios: Asset utilization ratios:* a. Current ratio n. Cash turnover b. Acid-test ratio 0. Accounts receivable turnover c. Days to sell inventory p. Inventory turnover d. Collection period 4. Working capital turnover Capital structure and solvency ratios: 1. Fixed assets turnover e. Total debt to total equity s. Total assets turnover f. Long-term...

  • Case study 2 Sailmakers Ltd John Jeffries recently left the army after more than 20 years in the service

    Case study 2Sailmakers Ltd John Jeffries recently left the army after more than 20 years in the service. He had decided that at 45 years of age it was time to start a second career. Throughout most of his life John had a passion for yachting and had competed successfully in many off-shore yacht races. He felt that because of his expertise and interest in yachting and the fact that over the years he had cultivated many friends and contacts...

  • Read below and answer, Why does a business that has profit of $30,000 per year need...

    Read below and answer, Why does a business that has profit of $30,000 per year need a bank loan? Jones Electrical Distribution After several years of rapid growth, in the spring of 2007 Jones Electrical Distribution anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from Metropolitan Bank-a local one- branch bank-to $250,000 in 2006. The maximum loan that Metropolitan would make...

  • Go With the Flow, Incorporated (“Company”) designs, manufactures, and sells a broad range of...

    Web Moving Images Texts Audio Software Patron Info About IA ProjectsHome American Libraries | Canadian Libraries | Universal Library | Community Texts | Project Gutenberg | Children's Library | Biodiversity Heritage Library |Additional CollectionsSearch: All Media Types Wayback Machine Moving Images Animation &Cartoons Arts &Music Community Video Computers &Technology Cultural &AcademicFilms Ephemeral Films Movies News &Public Affairs Prelinger Archives Spirituality &Religion Sports Videos Television Videogame Videos Vlogs Youth Media TextsAmerican Libraries Canadian Libraries Universal Library Community Texts Project Gutenberg Children's...

  • First 4 pictures are the case, please answer these! Case 12-3 Plastic Cable Clips In mid-September...

    First 4 pictures are the case, please answer these! Case 12-3 Plastic Cable Clips In mid-September Robyn Pemberton, purchasing officer in the laundry division of Fisher & Paykel Limited, lo- cated in Auckland, New Zealand, was wondering which procurement option made most sense for the plastic cable clips requirements for the new line of washing machines. THE LAUNDRY DIVISION Fisher & Paykel Limited was the largest home appliance manufacturer in New Zealand with sales of its major ap- pliances amounting...

Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
Share Your Knowledge

Post an Article
Post an Answer
Post a Question with Answer

Self-promotion: Authors have the chance of a link back to their own personal blogs or social media profile pages.