You can buy property today for $3 million and sell it in 5 years for $4 million. (you earn no rental income on the property.) a. if the interest rate is 8%, what is the present value of the sales price? (do not round intermediate calculations. enter your answer in millions rounded to 3 decimal places.) b. is the property investment attractive to you? yes no c-1. what is the present value of the future cash flows, if you also could earn $200,000 per year rent on the property? the rent is paid at the end of each year. (do not round intermediate calculations. enter your answer in millions rounded to 3 decimal places.) c-2. is the property investment attractive to you now? yes no

a.Rate of interest : 8%

Today’s Price = $3,000,000

Price after 5 years = $4,000,000

Present Value of price after 5 years = $4,000,000 / (1+0.08)^5

= $2,722,333.88

b.The property is not worth investing, since investing in the land is $3,000,000 while it can be sold today as $2,722,333, thus not a profitable investment as it will incur a loss of $277,667 ($3,000,000 - $4,000,000).

c.Present value of rent of 5 Years = $200,000*PVIFA(8%,5)

= $200,000*3.99999

= $798,542.01

d.NET PRESENT VALUE OF INVESTMENT = PRESENT VALUE OF FUTURE CASH FLOWS – INITIAL INVESEMTENT

NET PRESENT VALUE = $2,722,333.88 + $798,542.01 - $3,000,000

NET PRESENT VALUE = $520,874.80

Since the Net Present value is positive, it is worth investing in the land.

the definition of a small business is an independently owned and operated company that is limited in size and in revenue depending on the industry. a local bakery that employs 10 people is an example of a small business. a manufacturing facility that employees less than 500 people is an example of a small business.