William Smith, the junior partner in the firm of Jones, Brown, and Smith, has been offered, for $2.15 million, an apartment complex that is expected to generate after-tax cash flows from operations as indicated in the following chart.
The forecast incorporates a first mortgage loan of $1.5 million. Smith expects to sell the property after seven years, and the best estimate of after-tax cash flow from disposal is $740,000.
Using a 10 percent discount rate, compute the following:
a. Net Present Value
b. Profitability Index
c. Approximate Investment Value
| Year |
Exp. ATCF |
| 1 |
$60,000 |
| 2 |
$70,000 |
| 3 |
$80,000 |
| 4 |
$87,000 |
| 5 |
$93,000 |
| 6 |
$99,000 |
| 7 |
$105,000 |