Consider a Building with a Very Long Economic Life

question 9

Multiple Choice

Consider a building with a very long economic life. Assume at the end of year 6, NOI will be $80,000 as is expected to grow at a rate of 2 percent per year. You company's required rate of return is 12 percent. As part of your analysis, you must calculate the reversion value REV) at the end of year 5, which would be:

• A) $571,429
• B) $666,667
• C) $800,000
• D) $4,000,000

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Definitions:

Industry Standard

A prevalent practice, process, or guideline followed within a specific industry to ensure quality, safety, and efficiency.

Debt Financing

Raising funds for a company by selling debt instruments to individuals or institutional investors.

Liquidity

This concept describes how easily an asset or security can be converted into ready cash without affecting its market price.

Asset Management

The approach to build, operate, preserve, and trade assets in a financially efficient manner.