Harry and Belinda Johnson are considering purchasing a residential income property as an investment. The Johnsons want to achieve an after-tax total return of 7 percent. They are considering a property with an asking price of $190,000 that should produce $27,000 in gross rental income and $15,000 in net operating income.

(a) Calculate the price-to-rent ratio on the property.

(b) Calculate the present value of after-tax cash flow for the property, assuming that the after-tax cash-flow numbers are $8000 for the first year, $8400 for the second year, $8800 for the third year, $9200 for the fourth year, and $9600 for the fifth year, and that the selling price of the property will be $210,000 in five years.

(c) Give the Johnsons your advice on whether they should invest in the property at its current price of $190,000.