Question : Help Me Solve an Accounting Word Problem (:?
A. Luxury Lofts develops and manages residential rental properties throughout San Francisco. The company is considering a new project called the Davenport. The company’s management has put together the following estimates for related to the project:

Estimated cost of construction 10.000.000
Annual Cash inflows from rent 6,250,000
Annual cash outflows 4,750,000
Estimated useful life in years 35
salvage value 8,000,000
interest rate 8%

For Luxury Lofts, what is the net present value of the Davenport project?
san francisco property management

Best answer:

Answer by EJ (Philippines)
Answer:

Annual cash inflow from rent$ 6,250,000.00
Less: Annual cash outflow($ 4,750,000.00)
Net annual cash flow$ 1,500,000.00

At the present value table:
PV of an annuity at 8% for 35 periods = 11.65456822
PV of 1 at 8% for 35 periods = 0.067634543

Present value of annual cash flow ($ 1500000 * 11.65456822)$ 17,481,852.32
Add: Present value of salvage value ($ 8000000 * 0.067634543)$ 541,076.34
Total present value$ 18,022,928.67
Less: Estimated cost of construction$ 10,000,000.00
Net present value of investment$ 8,022,928.67