An investor agreed to sell a warehouse five years from now to the tenant who currently rents the space. the tenant will continue to pay $20,000 rent at the end of each year including year 5 in which he will purchase the building for an additional $150,000. assuming the investor's required rate of return is 10%, how much is this deal presently worth to the investor who was willing to sell?

Net present value of $168,953.93

Explanation:

We will calculate the present value of the cash flow at the investor's rate of return.

First we have the annuity of 20,000 during 5 years

C = 20,000

time = 5

rate = 10

PV = 75,815.73539

Then we calculate the present value of the final payment of 150,000

Nominal = 150,000

rate = 0.1

time = 5

PV = 93,138.198459

We add both together: And get the present value

75,815.73 + 93,138.20 = 168,953.93

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