Microsoft Office Tutorials and References
In Depth Information
The previous example is missing one key element: namely, the disposition of the property after seven years.
You could keep renting it forever, in which case you need to increase the number of cash flows in the calcula-
tion. Or you could sell it, as shown in Figure 12-5.
Figure 12-5: The initial investment may still have value at the end of the cash flows.
The NPV calculation in cell D15 is
In this example, the investor can pay $428,214.11 for the rental property, collect rent for seven years, sell the
property for $450,000, and make 10% on his investment.
Initial and terminal values
This example uses the same cash flows as the previous example except that you know how much the owner of
the investment property wants. It represents a typical investment example in which the aim is to determine if,
and by how much, an asking price exceeds a desired rate of return, as you can see in Figure 12-6.
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