Respuesta :
The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.
What do you mean by investment?
Investment refers to the dedication of an asset to acquire growth in value over a duration of time. In finance, the motive of making an investment is to generate a return from the invested asset.
As per the information,
The vacancy rate is given is 5%
The occupancy rate is 100 - 5= 95%
[tex]\rm\,The\,Net \,Income = Occupancy \, Rate \times Income - Expenses\\\\ \rm\,The\,Net \,Income = (95\% \times 3,600 \times 12) - 8,640\\\\ \rm\,The\,Net \,Income = \$32400[/tex]
Now, if it is assumed that the income is earned forever, then the present value of the income will be
PV of net income = A/r
A- 32400 , r - 12%
[tex]\rm\,PV = \dfrac{32400}{0.12}\\\\\\PV = \$270000[/tex]
Hence, The amount that Harry should pay for the investment is the present value of the net income discounted at the rate of return of 12% is equal to $270,000.
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