Problem
Garden Homes is considering purchasing a small residential building in Abbotsford that will cost $1,700,000 and will require $120,000 in renovations immediately. Revenue from rent is estimated to be $500,000 a year. Expenses are estimated to be $200,000 a year. They plant to keep the building for 6 years and estimates they will be able to sell the building for $2,200,000 at the end of 6 years. Assume expenses occur at the beginning of the year and revenue at the end of the year. Garden wants to earn at least 18% per year. Garden has calculated the NPV of this project is -$81,683.54.
What minimum increase in the selling price, 6 years from now, would make it worthwhile for them to purchase the building if they want to earn a minimum of 18% per year?