K
Kchapman22
Member
Hi all could someone kindly provide working for the following question please:
A property developer is considering investing in a project. The project is a special
arrangement with a local business that owns an empty office building and is in
need of short-term cash.
Under the terms of the arrangement the developer will buy the building for
£5,000,000. In order to make the building suitable as a business premises he will
need to spend £7,000,000 continuously during the first year. At the end of the first
year, he will let the property to the business for a further ten years at a fixed
annual rent, payable annually in advance. The business will then buy back the
property from him at twice the original sale price i.e. £10,000,000.
Calculate to the nearest £5,000 the annual rent the developer needs to charge in
order to obtain an internal rate of return of 7% p.a. from this project.
Answer is 220,000 but can't see how this is correct. Or how the answer was obtained.
Any help on this would be very appreciated.
Thanks
A property developer is considering investing in a project. The project is a special
arrangement with a local business that owns an empty office building and is in
need of short-term cash.
Under the terms of the arrangement the developer will buy the building for
£5,000,000. In order to make the building suitable as a business premises he will
need to spend £7,000,000 continuously during the first year. At the end of the first
year, he will let the property to the business for a further ten years at a fixed
annual rent, payable annually in advance. The business will then buy back the
property from him at twice the original sale price i.e. £10,000,000.
Calculate to the nearest £5,000 the annual rent the developer needs to charge in
order to obtain an internal rate of return of 7% p.a. from this project.
Answer is 220,000 but can't see how this is correct. Or how the answer was obtained.
Any help on this would be very appreciated.
Thanks