A group of private investors borrowed $28 million to build 320 new luxury apartments near a large university. The money was borrowed at 5% annual interest, and the loan is to be repaid in equal annual amounts (principal and interest) over a 30-year period. Annual operating, maintenance, and insurance expenses are estimated to be $4,500 per apartment, and these expenses are incurred independently of the occupancy rate for the apartments. The rental fee for each apartment will be $12,000 per year, and the worst-case occupancy rate is projected to be 75%.
a. How much profit (or loss) will the investors make each year with 75% occupancy?
b. Repeat Part (a) when the occupancy rate is 95%. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 5% per year.