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Bahrah Corporation is interested in buying a 50-unit apartment complex, and renting out the individual apartments at $600 per month. The tenants pay their own heat and utilities. The company estimates the land value as 20% of the total value of the complex. Bahrah expects to sell the property after 10 years at a price that is 50% higher than its current value. Bahrah will depreciate the buildings on a straight-line basis over 25 years. Bahrah estimates maintenance expenses, including real estate taxes, to be 20% of the rental income. Assume that all cash flows occur at the end of each year. The discount rate for this investment is 12%, and the tax rate of Bahrah is 30%. Calculate the price that Bahrah should pay for the complex just to break even.

Financial Management, Finance

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