Question

Lin Land Ltd. (LLL) is considering investing in an apartment complex. The sale price is $450,000 and LLL expects to have positive after-tax cash flows from rents of $20,000 for the next three years. At the end of the third year, LLL anticipates selling the apartment complex for a net after-tax gain on sale of $500,000. If LLL's required return is 15%, should LLL go ahead and purchase the apartment complex?

Answer 1

no

Step-by-step explanation:

we need to determine the npv to know if it is suitable

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

cash flow in year 0 = -450,000

cash flow in year 1 and 2 = 20,000

cash flow in year 3 = 20,000 + 500,000

i = 15%

npv = -75,577.38