An apartment building has just gone up for sale. There are 30 apartments which rent for $12000 per year each.

An apartment building has just gone up for sale. There are 30 apartments which rent for

$12000 per year each. Assume these apartments have an infinite life span, and have zero

maintenance or tax costs.

a.

If the annual interest rate is 3 percent, what is the maximum you should be willing to

pay for this property?

b.

If the price of the building were $8,000,000, what is the caprate on this property. If the

interest rate is as in (a), compare the user cost with the caprate, and make a decision

about whether to buy the property or not.