Q5- A building is purchased for AED 11,500,000 and it is then rented out for 20
ID: 3199563 • Letter: Q
Question
Q5- A building is purchased for AED 11,500,000 and it is then rented out for 20 years. The interest rate is 12%. The rental income is AED 595,000 per year and the annual maintenance costs are AED 110,000. The salvage value at the end of the 20 years is AED 12,500,000. For this combination of cash flows draw a cash flow diagram and calculate the present worth. Q6- Ahmed deposits $600btoday, $800 three years from now, and $900 four years from now. For an interest rate of 8%, determine: a) Present worth of his deposits using the tables b) Future worth of his deposits at the end of four years using the formula c) Annual worth of his deposits using tables and formulaExplanation / Answer
Ans 6 ) Interest rate is 8%
Amount deposited in current year (Y) is $600
Amount deposited in Y+3 is $800 and Amount deposited in Y+4 is $900
a) Present worth of his deposits are as follows (we will do by fomulas as no tables are attached)
Present worth of $600 to be deposited in current year would be $600
Present worth of money to be deposited in year 3 would be PV = FV * [1 / (1+i)^n] so PV = 800 * (1/ (1+0.08)^3) = $ 635.07
Similary PV of amount deposited in year4 would be : 900 * (1/ (1+0.08)^4) = 661.53
Hence total PV is 600+635.07+661.53 = $1896.60
b) Future value formula is FV = PV *(1+r)^n so for $600 , value after 4 years will be 600* (1+0.08)^4 = $816.29
Future value of $800 which was deposited in year 3 (so here n will be 1 as we need value at the end of 4th year) :
800*(1+0.08) = $864
Value of $900 will remain same in the 4th year
So total FV = 816.29 + 864 + 900 = $2580.29
(c) Annual worth of his deposits is the uniform amount per interest period. Its formual is A = P *[i(1+i)^n) / ((1+i)^n -1) ]
PV as calculated in part a is $1896.60 , i = 0.08 and n=4
So annual value would be = 1896.60 * ( (0.08 * (1.08)^4 ) / ((1.08)^4 - 1)) = $572.62
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.