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John Willing would like to take out a loan to purchase a plot of land in Kitengela Muigai Estates. The cost of a plot is
John Willing would like to take out a loan to purchase a plot of land in Kitengela Muigai Estates. The cost of a plot is currently KES 1.6Mn and this is expected to grow at a rate of 15% per annum for 5 yrs and then 5% annually thereafter. John figures that he can get a 5 yr loan and purchase the land immediately; and then hold the land for 10 years and sell at the land price then to make a profit. The particulars of the loan are; Interest per annum 17.5% Payments are made annually Loan term is 5yrs (a.) Draw up a loan schedule for this loan. [7] [3] (b.) Calculate the value of land in 10yrs. (c.) Determine the amount of profit John Willing will make assuming there is a 7.5% tax on the gain in land value. [3] (d.) How long should John hold the land in order to make a profit that is double the purchase price of land? 121
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