An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the investor will spend $0.5 million on necessary refurbishments and improvements. A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million. Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its investment of 6.0% per annum effective?

An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the investor will spend $0.5 million on necessary refurbishments and improvements. A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million. Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its investment of 6.0% per annum effective?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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