A house and lot are for sale for $210,000. $40,000 is the value of the land. On January 1st, Bonnie buys the house to rent out. After 5 years, she expects to sell the house and land on December 31st for $225,000. Total annual expenses (maintenance, property taxes, insurance, etc.) are expected to be $5,000 per year. The house would be depreciated by MACRS depreciation using a 27.5 year straight-line rate with midmonth convention for rental property. For depreciation, a salvage value of zero was used. Bonnie wants a 15% after-tax rate of return on her investment. Assume that Bonnie's incremental income tax rate is 28% each year and the capital gains are taxed at 15%. Determine the following: (a) The annual depreciation, (b) The capital gain (loss) resulting from the sale of the house, and (c) compute the NPV if she charges $2000/month rent and her MARR is 15%.

Anwsers: a) year 1 1 & 5 $5925, yrs 2-4 $6181

b) $15K capital gain & $30,393 recaptured,

c) $30,871