Brad Smith Is Considering the Purchase of a REIT

question 5

Multiple Choice

Brad Smith is considering the purchase of a REIT.The REIT's prospectus projects positive cash flows for Years 1,2,and 3 of $6,000,$7,000,and $8,000,respectively.At the end of three years,Brad anticipates he will sell the REIT for $115,000.He wants to make a return of at least 6 percent.How much should he pay for the REIT?

• A)112,983.2317.
• B)113,383.5314.
• C)114,173.8319.
• D)115,163.5243.

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Definitions:

Settlement

The conclusion of a transaction or the resolution of a claim or dispute, usually involving the transfer of funds or assets.

Clean-Up Provision

A clause in a financial contract that requires the borrower to pay off a loan or line of credit in full after a specified period or under certain conditions, to ensure the credit line is periodically brought to a zero balance.

AASB 137

An Australian accounting standard that deals with the accounting for provisions, contingent liabilities, and contingent assets.

Long-Term Project

A project that spans over an extended time period, typically beyond one year, often involving substantial investment or complexity.