A Rental Property Is Providing 13% Rate of Return

question 4

Multiple Choice

A rental property is providing 13% rate of return. Next year's rent is expected to be $1.0 million and is expected to grow at 3% per year forever. What is the current value of the property?

• A) $7.7 million
• B) $10 million
• C) $33.3 million
• D) none of the above

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Definitions:

Accord and Satisfaction

A legal agreement between parties to settle a dispute by agreeing on an alternative obligation other than what was originally owed.

Novation

The act of replacing an existing obligation with a new one, effectively transferring the rights and duties to a third party.

Liquidated Damages

A contractual provision that determines in advance the amount of damages to be paid if a party breaches the contract.

Breaching Party

The party in a contract who fails to fulfill their contractual obligations, thereby violating the agreement.