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We assumed that the sample building was not occupied. It consisted purely of capital amounts. But in the real world, part of the return earned by a building owner is rent. Now assume that rent of $11,000 is paid strictly at year-end and that both the state of nature (tornado or sun) and the mortgage loan payment happen only after the rent has been safely collected. The new building has a resale value of $120,000 if the sun shines, and a resale value of $20,000 if the tornado strikes. Again, assume a 10% discount rate.

What is the value of the building today?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91970333

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