CA building will be constructed in 5 years. The yearly expenditures in these five years will be $400,000/yr. The building's life is 40 years after the end of the construction. The yearly net rental income during these 40 years will be $200,000/yr. Assuming an interest rate of 10% in the first 20 years (including 5 years of construction time and 15 years of the building's life) and an interest rate of 12% in the remaining 25 years of the building's life, calculate the value of the building at the end of its life.
A company wants to start an excavation business which will continue for 11 years. They plan to buy an excavator which will cost $620,000 with a useful life of 5 years and a salvage value of $50,000. A major repair of $60,000 is estimated for the end of the 3rd year. They also expect to get an income of $180,000 per year. At the end of the 5-year period, they are planning to buy a new excavator for $800,000 with a useful life of 6 years and a salvage value of $75,000. The expected income from this excavator is $200,000 per year during its useful life. Maintenance and repair cost for the second excavator is expected to be $80,000 in the 3rd year of its useful life. The interest rate for the first 5 years is 10% and for the next 6 years, the interest rate is expected to be 12%. Decide whether this is a good investment or not by calculating the present value of all expected expenditures and incomes.
