Technique, the annual operating income of the building is $26,400. How much money should he be willing to pay when he wants to buy this building over its 30-year economic life, using the plot of land at $75,000 and an interest rate of 11%?
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According to the Building Residual Technique, the annual operating income of the building is $26,400. How much money should he be willing to pay when he wants to buy this building over its 30-year economic life, using the plot of land at $75,000 and an interest rate of 11%?
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- Assume that you are planning to buy a property producing natural resources. You think you will keep the property for the next 23 years. You plan to spend $700 per acre. You will have incurred costs of $11 per acre for the 23 years prior to selling the property. You believe that you will receive $26/acre/year in revenue during the investment period. What price (at time of the future sale) will you need to get for the property under 2 MAR scenarios. (using both 5.8% and 8% as MAR).Robert Cooper is considering purchasing apiece of business rental property containing storesand offices at a cost of $250,000. Cooper estimatesthat annual disbursements (other than income taxes)will be about $12,000. The property is expected toappreciate at the annual rate of 5%. Cooper expectsto retain the property for 20 years once it is acquired.Then it will be depreciated as a 39-year real-propertyclass (MACRS), assuming that the property will beplaced in service on January 1st. Cooper’s marginaltax rate is 30% and his MARR is 15%. What wouldbe the minimum annual total of rental receipts thatwould make the investment break even?An investor is considering the acquisition of a "distressed property" which is on Northlake Bank's REO list. The property is available for $200,800 and the investor estimates that he can borrow $160,000 at 4.5 percent interest and that the property will require the following total expenditures during the next year: Inspection Title search Renovation Landscaping Loan interest Insurance Property taxes Selling expenses Required: a. The investor is wondering what such a property must sell for after one year in order to earn a 20 percent return (IRR) on equity. b. The lender is now concerned that if the property does not sell, investor may have to carry the property for one additional year. He believes that he could rent it (starting in year 2) and realize a net cash flow before debt service of $1,440 per month. However, he would have to make an additional $7,440 in interest payments on his loan during that time, and then sell. What would the price have to be at the end of year 2 in order…
- Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?You purchase a two acre office park for $5,000,000. Calculate the depreciation that you can deduct when estimating your annual tax liability if 75% of purchase price is allocated to depreciable real property. What if the property was an apartment complex?A newly-built business property, containing a space for a store and two offices, can be purchased for $1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least $458,460 from the property, and the annual out-of-pocket expenditure will not exceed $60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than $700,000. Annual taxes and insurance will total 2.5% of the first cost. Assume he has sufficient capital to purchase the property, and that the minimum attractive return (MARR) he is obtaining from his capital is 20%. What is the Rate of Return of the Investment (in %)?
- A newly-built business property, containing space for a store and two offices, can be purchased for P1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least P458,460 from the property and that the annual out-of-pocket disbursements will not exceed P60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than P700,000. Annual taxes and insurance will total 2.5% of the first cost. * Assume he has sufficient equity capital to purchase the property, and that the average return he is obtaining from his capital is 20%. Would you recommend the investment? * What recommendation would you make if he had to borrow 25% of the required capital, on the basis of a 10-year amortization with interest of 18%? *If the entire capital can be obtained by floating bonds at 15% that will mature in 10 years, what would you recommend? Sinking fund interest is 15%A newly-built business property, containing space for a store and two offices, can be purchased for P1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least P458,460 from the property and that the annual out-of-pocket disbursements will not exceed P60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than P700,000. Annual taxes and insurance will total 2.5% of the first cost. a.) Assume he has sufficient equity capital to purchase the property, and that the average return he is obtaining from his capital is 20%. Would you recommend the investment?b.) What recommendation would you make if he had to borrow 25% of the required capital, on the basis of a 10-year amortization with interest of 18%?c.)If the entire capital can be obtained by floating bonds at 15% that will mature in 10 years, what would you recommend? Sinking fund interest is 15%Anewly built property, containing space fora store and two offices, can be purchased for P1200,000 A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least P6oo.000 from the property and that the annual Out-of-pocket cisbursements will not exceed P42.000. he belleves that he should be able to dispose of the property at the end of 10 years at not less than P500.000. Annual taxes and insurance will total 2.8% of the first cost. Assume he has Sutficient eguity capital to purenase the property and that the average return he is obtaining from his capital is 30% Would you recommend the investment? a) Use Rate of retum method b) Use payout or payback method
- Blossom, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Blossom currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Blossom $48960 per year. The building will cost Blossom $459000. Blossom will depreciate the building for 20 years. At the end of 20 years, the building will have a $127500 salvage value. Blossom’s required rate of return is 11%. suggest whether he should buy warehouseSome equipment is needed for a construction project. It can be leased for $150,000 annually, or it can be purchased for $900,000 at the beginning and sold for $225,000 at the end of 3 years. What is the rate of return for owning the equipment rather than leasing it?Two options are available for the reroofing of Pinkley Pickles Inc. The first option, a traditional tar and gravel roof, costs $75,000 and has a life of 15 years. The second option, a neoprene membrane roof, costs $85,000 and has a life of 20 years. The company expects to occupy the building for 50 years. Using an interest rate of 5% and annual worth analysis, which roof should be chosen?
