Maximize the value of the investment


Problem:

A real estate investor has the opportunity to purchase an apartment complex. The apartment complex costs $400,000 and is expected to generate net revenue (net after all operating and finance costs) of $6000 per month. Of course, the revenue could vary because the occupancy rate is uncertain. Considering the uncertainty, the revenue could vary from a low of -$1000 to a high of $10,000 per month. Assume that the investor's objective is to maximize the value of the investment at the end of 10 years.

1. Should the investor buy the apartment complex or invest the $400,000 in a 10 year certificate of deposit earning 9.5%? Why?

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Finance Basics: Maximize the value of the investment
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