Imagine that John Dees own a piece of property. He is trying to determine whether to refinance the property so he can possible make a higher return on other investment. Regardless of his decision, he plans to sell the property in 10 years. <\/p>
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Option A: keep the property, as well as the currently-existing financing in place. The property is expected to produce an 11.5% return over the next 10 years. <\/p>
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Option B: Refinance the property. Because John has owned the property for number of years, he has equity build-up embedded in the investment. The commercial building is currently appraised at value of $627,000. His current loan balance is $169,290. The monthly mortgage loan accrues interest at 6.35%. If John refinances the property to pull equity out, he estimates for the new Loan-to-value ratio to be 65%. Because interest rates related to properties with a risk profile similar to John's have increased in recent years, the new loan is estimated to accrue interest at 7.25%. Closing costs and bank fees are estimated to be 11,270. John estimates that by investing the equity that he would pull out of the property in a diversified portfolio of small-cap public stocks he can earn 11.3%. <\/p>
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Should John refinance? Please show all of your work.Please explain the rationale behind your decision<\/p>", "transcribed_text": "", "related_book": { "title": "Intermediate Accounting", "isbn": "324376375, 0324375743I, 978-0324376371, 9780324375749, 978-0324312140", "edition": "16th Edition", "authors": "James D. Stice, Earl K. Stice, Fred Skousen", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/105.jpg", "uri": "\/textbooks\/intermediate-accounting-16th-edition-105", "see_more_uri": "" }, "free_related_book": { "isbn": "3642850219", "uri": "\/textbooks\/the-barbier-reaction-and-related-one-step-processes-1st-edition-978-3642850219-158139", "name": "The Barbier Reaction And Related One Step Processes", "edition": "1st Edition" }, "question_posted": "2024-06-10 05:18:16", "see_more_questions_link": "\/study-help\/questions\/business-banking-2021-September-12", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/a-how-many-excess-electrons-must-be-distributed-uniformly-within", "description": "(a) How many excess electrons must be distributed uniformly within the volume of an isolated plastic sphere 30.0 cm in diameter to produce an electric field of 1150 N\/C just outside the surface of...", "stars": 3 }, { "url": "\/study-help\/optics\/show-for-normally-incident-plane-waves-that-if-an-aperture", "description": "Show (for normally incident plane waves) that if an aperture has a center of symmetry (i.e., if the aperture function is even), then the diffracted field in the Fraunhofer case also possesses a...", "stars": 3 }, { "url": "\/study-help\/biostatistics\/in-the-article-a-new-method-for-photocephalometry-published-in-1981227", "description": "In the article A New Method for Photocephalometry published in JAMA Facial Plastic Surgery (Gu, et al., 2018), the authors reported the results of a paired comparison study of pixel length...", "stars": 3 }, { "url": "\/richardson-services-ltd-was-formed-on-may-1-2017-the", "description": "Richardson Services Ltd. was formed on May 1, 2017. 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