Problem
Your firm is considering purchasing an old office building with an estimated remaining service life of 25 years. Recently, the tenants signed a long-term lease, which leads you to believe that the current rental income of $260,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining life of the asset. That is. the annual rental income would be S286.000 for years 6 through 10 5314600 for years 11 through 15, $346,060 for years 16 through 20, and $380,666 for years 21 through 25. You estimate that operating expenses, including income taxes, will be $85,000 for the first year and that they will increase by $6,000 each year thereafter. You also estimate that razing the building and selling the lot on which it stands will realize a net amount of $46,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 9% per annum, what would be the maximum amount you would be willing to pay for the building and lot at the present time?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.