An apartment building has a gross income of $11,340 per month and annual expenses of $25,000.
What is the proce a buyer would pay for the building to receive a net return of 8% on his investment ?
Please take your time. The solution is posted below the wildlife photo.
A. $1,388,500
First multiply the monthly income of 11,340 times twelve months to get the annual income from the building of $136,080.
Subtract the annual expenses of 25 thousand dollars from the annual income of $136,800 and we see that the owner nets $111,080 after expenses.
Now, divide the rate of net return on the investment of 8% or .08 into the net income of $111,080 to see that the buyer would have paid $1,388,500 to receive 8% return on the investment.
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