Answered: The owner of a building that costs…

The owner of a building that costs $100,000 who wishes to determine the annual rent necessary to earn a 10% return on the investment in 10 years should use what method?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter11: Venture Capital Valuation Methods

Section: Chapter Questions

Problem 1aM

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

The owner of a building that costs $100,000 who wishes to determine the annual rent necessary to earn a 10% return on the investment in 10 years should use what method?

Formula Formula ROI (%) = Net Income Principal Amount × 100

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