Question
An investor is considering buying a rental duplex with land valued at $30,000 and the building valued at $150,000. Straight-line depreciation over 27 years will
An investor is considering buying a rental duplex with land valued at $30,000 and the building valued at $150,000. Straight-line depreciation over 27 years will be taken. The investor will be actively involved in the management of the property. He is in a 30% tax bracket. Assume potential gross income of $44,000 in year one, vacancy of 12% and Operating expenses equal to 40% of Effective gross income. Gross potential income is expected to increase by 2% each year over the holding period. A lender will make a 20-year loan equal to 75 percent of the total value of the property at 9 percent interest with monthly payments. Assume that there is 3 percent inflation related to total property value each year the investor owns the property and that there is a 4% commission paid (selling expenses) in the year of sale. Assume that the investors after tax required rate of return is 12% and will hold the property for three years. Use the 25% tax rule where: for capital gain -- (tax rate >25% use marginal tax rate of 15%); for depreciation recapture-(tax rate >25% use marginal tax rate of 25%). Make sure to show all work below so that I can follow.
43. Find NPV A. -$12,616 B. -$12,610 C. +$12,410 D. +$12,532 E. +$12,604
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started