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A fund purchased an office block nine months ago for RM5 million.
It will spend a further RM900,000 on refurbishment in two months’ time.
A company has agreed to occupy the office block six months from now. The lease agreement states that the company will rent the office block for fifteen years and will then purchase the property at the end of the fifteen year rental period for RM6 million. It is further agreed that rents will be paid at the beginning of each quarter and will be increased every three years at the rate of 4% per annum. The initial rent has been set at RM200,000 per quarter with the first rental payment due immediately on the date of occupation.
Calculate, as at the date of purchase of the office block, the net present value of the project to the fund assuming an effective rate of interest of 8% per annum.
 
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The post A fund purchased an office block nine months ago for RM5 million. It will spend a further RM900,000 on refurbishment in two months’ time.   appeared first on Superb Professors.

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