A Building Is Appraised at $1 Million

question 29

Multiple Choice

A building is appraised at $1 million. This estimate is based on forecasted net rent of $100,000 per year discounted at a 10 percent cost of capital [PV = 100,000/ 0.1 = 1,000,000]. The rent is the net of repair and maintenance costs and taxes. Suppose the building is currently uninhabitable. It will take one year and $250,000 of work (spent at the end of the year) to bring it into rentable condition. How much would you be willing to pay for the building today?

• A)$1,000,000
• B)$681,818
• C)$750,000
• D)$909,090

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Definitions:

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