You are considering constructing a luxuryapartment building project that requires an investment of $15,500,000, which comprises $12,000,000for the building and $3,500,000 for land. The building has 50 units. You expect the maintenance cost forthe apartment building to be $350,000 the first yearand $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. Thecost to hire a manager for the building is estimatedto be $85,000 per year. After five years of operation,the apartment building can be sold for $17,000,000.What is the annual rent per apartment unit that willprovide a return on investment of 15% after tax?Assume that the building will remain fully occupiedduring the five years. Assume also that your tax rateis 35%. The building will be depreciated accordingto 39-year MACRS and will be placed in service inJanuary during the first year of ownership and sold inDecember during the fifth year of ownership.

You are considering constructing a luxuryapartment building project that requires an investment of $15,500,000, which comprises $12,000,000for the building and $3,500,000 for land. The building has 50 units. You expect the maintenance cost forthe apartment building to be $350,000 the first yearand $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. Thecost to hire a manager for the building is estimatedto be $85,000 per year. After five years of operation,the apartment building can be sold for $17,000,000.What is the annual rent per apartment unit that willprovide a return on investment of 15% after tax?Assume that the building will remain fully occupiedduring the five years. Assume also that your tax rateis 35%. The building will be depreciated accordingto 39-year MACRS and will be placed in service inJanuary during the first year of ownership and sold inDecember during the fifth year of ownership.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5EA: If a garden center is considering the purchase of a new tractor with an initial investment cost of...

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You arc considering a luxury apartment building project that requires an investment of $12,500,000. The building has 50 units. You expect that the maintenance cost for the apartment building will be $250,000 in the first year, and to rise to $300,000 in the second year, and to continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $80,000 per year. After five years of operation, the apartment building can be sold for $14,000,000. What annual rent per apartment unit will provide a return on investment of 15%? Assume that the building will remain fully occupied during the five years.
You are considering a luxury apartment building project that requires an investment of $12,500,000. The building has 50 units. You expect that the maintenance cost for the apartment building will be $250,000 in the first year, and to rise to $300,000 in the second year, and to continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $80,000 per year. After five years of operation, the apartment building can be sold for $14,000,000. What annual rent per apartment unit will provide a return on investment of 15%? Assume that the building will remain fully occupied during the five years.
You are considering a luxury apartment building project that requires an investment of $15,000,000. The building has 50 units. You expect the maintenance cost for the apartment building to be $300,000 the first year and $320,000 the second year. The maintenance cost will continue to increase by $20,000 in subsequent years. The cost to hire a manager for the building is estimated to be $70,000 per year. After five years of operation, the apartment building can be sold for $20,000,000. What is the annual rent per apartment unit that will provide a return on investment of 15%? Assume that the building will remain fully occupied during its five years of operation and rent remains constant each year. (If you use a computational tool such as Excel please make sure that your reasoning is clearly stated on your solution file) A) $38,257.57 B) $35,628.51 C) $32,712.74 D) Answers A, B and C are not correct
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