Question: You have inherited an apartment complex. You are not sure whether to rent the property or to sell the property. You could receive $65,000 per year for 10 years in rent and then sell the property for $400,000. Or you can sell the property for $300,000 now and payments of $50,000 for the next 15 years. The property has a mortgage of $130,000 that would be due immediately upon the sale; or annual payments of $20,000 would have to be made for 10 years if you rent the property. The cost of capital is 16%.
1) Calculate the NPV for each alternative (ignore taxes).
2) Discuss the qualitative (as opposed to the quantitative) factors that might affect the decision to sell or rent.