Investment Essay

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User Generated

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Statistics

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Purdue Global University

Course

MM 255

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Homework

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OryyOregvr

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I own a small printing shop in Palm Harbor, FL that provides high-quality color printing,

direct mail marketing, and digital advertising services. The office is located just down the street

from a vacant lot that is currently for sale for $38,000. My business has experienced exponential

growth since November 2019. We have seen an increase in net profit of 95%. Currently, the

limiting factor of our expansion is simply lack of space for inventory. I am interested in

purchasing this lot to build a new commercial office that would allow for continuous expansion

of services we provide and space for inventory.

After evaluating my finances, I decided to consider which assets I could sell to buy the

property outright. I have a $40,000 Certificate of Deposit, which matures in 3 years at 4%

compounded annually. I could sell it, however, there is a $500 penalty for early withdrawal.

Other options include either using the traditional financing methods, or to wait 3 years for my

CD to mature. I would prefer not to hold a long-term mortgage against my profit and loss

income, so instead I will consider using the CD as a vehicle of an investment and study the

calculations. Or I hold off and hope that the property is still available when my CD matures so

that I can sell it without accruing the $500 penalty.

First, I need to determine what the accrued value of my CD will be in three years when it

matures. I will need to calculate the period interest rate and the number of periods.

Period Interest Rate = 0.04/1 = 0.04 = 4%

Number of Periods = 3*1 = 3

F.V. = 40000*(1+0.04)

= $44,994.56

Now that I have calculated the future value of my CD, I’m interested in knowing whether

the market for commercial real estate will support the purchase decision at the asking price.

According to www.nar.realtor, “Relative to January 2020, the average price per square foot has

fallen by 10% for apartment buildings, amid concerns about renters’ ability to pay rent. The

average price per square foot of industrial buildings was slightly down by 1.3%. The average

price per square foot on office building sales in August rose 9% relative to January (Yun, Hardin,

& Dunn, 2020).” With this information, and to be conservative in my estimate, I will use the

lower percentage rate of 1.3% to calculate the property’s value in 3 years. I have calculated the

F.V. of the property to be:

Period Interest Rate = 0.013 or 1.3%

Number of Periods = 3*1 = 3

Future Value = 38000*(1+0.013)

= $39,501.35

What does this suggest? I have a CD that will have a worth of $39,500 if I cash in today.

This same CD will have an accrued value of $44,994.56 after maturity. The property costs

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I own a small printing shop in Palm Harbor, FL that provides high-quality color printing, direct mail marketing, and digital advertising services. The office is located just down the street from a vacant lot that is currently for sale for $38,000. My business has experienced exponential growth since November 2019. We have seen an increase in net profit of 95%. Currently, the limiting factor of our expansion is simply lack of space for inventory. I am interested in purchasing this lot to build a new commercial office that would allow for continuous expansion of services we provide and space for ...
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Tags: Financial Decisions investment options equipment storage planning and prioritizing business goals