UTEM is planning to generate passive income by investing in turnkey rental using their available building for a period of 5 years. There are two potential area identified by the top management. Both...

Subject : Engineering Economy and Management

Extracted text: UTEM is planning to generate passive income by investing in turnkey rental using their available building for a period of 5 years. There are two potential area identified by the top management. Both proposals are: Area 1: The rental income from this area is expected to start at RM20,000 per month which total will be RM240,000 per year. This area need renovation work cost them RM500,000. The maintenance cost to maintain the area is RM18,000 per year and decrease RM1,000 per year. Area 2: For this area, the renovation work will take 2 phase. The renovation work will cost RM60,000 in early phase and RM40,000 in year 1. This investment will result in rental income of RM50,000 starting from year 1 and increase RM10,000 per year. This proposal requires maintenance RM20,000 per year start at year 3. UTEM have set criteria for a good investment must give minimum return at RM60,000 per year to university. Analyze with comment of both proposals whether this a good investment with Minimum Attractive Rate of Return set by the Univerisity at 8% per year.