Final answer:
To determine if a rental property is a good investment, the present value of the expected rental income over the property's life span must be calculated using discounted cash flow analysis and compared with the initial investment cost. Exact figures are necessary to perform a proper calculation.
Step-by-step explanation:
To determine if the rental property is a good investment, we'd need to calculate the present value of the rental income over the expected life of the property and compare it to the initial investment cost. This involves a financial concept known as the discounted cash flow (DCF) analysis which uses the concept of compound interest.
Under the assumption of a fixed interest rate i, a uniform annual income decrease, and a definite property life span, we would apply the formula for the present value of an annuity that decreases uniformly (often called an annuity degression). Unfortunately, the exact figures for the rental income, annual decrease, property life span, and rate of interest i have not been provided. Therefore, a numerical example cannot be given.
Generally, if the present value of the expected rental income (minus the amount of income decrease per year) is greater than the initial investment cost, the rental property could be considered a good investment. If we were to include opportunity cost in our calculations, such as the alternative investment mentioned in the provided information, this can also affect whether the rental property is viewed as a good investment.