Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Could someone please help me with this exercise ASAP? Nella's Bookstore: On December 31,1990 Nella Lyrrad invested $500,000 to build a store for rental purposes

Could someone please help me with this exercise ASAP?

Nella's Bookstore:

On December 31,1990 Nella Lyrrad invested $500,000 to build a store for rental purposes that was completed at the end of December, 1991. At the beginning of 1992 it was fully rented to a bookstore and yearly cash rents for 1992, 1993, 1994 and 1995 were $250,000 for a total of $1,000,000.Rents and expenses were collected and paid at year-end. Her cash expenses were $100,000 in each of 1992, 1993, 1994, and 1995 for a total of $400,000. She also used straight-line depreciation (20 year life) for the building, therefore, her yearly depreciation expense was $25,000 for a total of $100,000 for the period.Her book and cash tax rates were 50 % during this period.Nella sold the building for book value in early 1996.The sale of the bookstore was the only transaction for Nella in 1996 (since she sold for book-value, there were no gains or losses, i.e., no taxes).

Nella's sister, Ibot bought a bookstore on the same day that Nella's store was completed (December 31, 1991).Ibot paid $500,000 for her store, the same as Nella.Ibot had the exact same revenues and expenses as Nella over the period, 1992,1993,1994 and 1995.Rents and expenses were collected and paid at year-end.However, Ibot did not claim any depreciation for tax returns for the periods. Ibot's thinking was that a potential buyer would want to look at her book value at the time of sale.On the day that Nella sold her store for $400,000, Ibot called to say that she had just sold her store that morning for $500,000.

You are not required to show any schedules below.

A.Nella's full-cycle NIAT was____________________

B.Nella' full-cycle cash flow was____________________

C.Ibot's full-cycle NIAT was____________________

D.Ibot's full-cycle cash flow was___________________

E.Who did the best?Compare the NPV of the two stores. Assume a 12% cost of capital.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting In A Dynamic Environment

Authors: Cheryl S McWatters, Jerold L Zimmerman

1st Edition

0415839025, 9780415839020

More Books

Students also viewed these Accounting questions

Question

What do you see as your biggest strength/weakness?

Answered: 1 week ago