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The house you like costs $200,000. You expect home values to increase by 10% every year. Property taxes: 2% of house value, due at the end of each year. In other words, the property taxes due at the end of year 1 are based on the house value in year 0.) Maintenance: $1,000 per year. You would take a home mortgage loan with an LTV of 80%. Loan information: 30-year term, fully amortizing with fixed annual payments, 5% annual interest rate, remaining balance due upon house sale. When you sell the house the estimated selling expenses are $5,000, and you expect no capital gain taxes. if you instead rent a house just like this one, you'd be paying $15,000 on rent every year. Your income puts you in a 25 income tax bracket Calculate the after tax cash flows if you buy rather than rent. Use them to calculate the after-tax Internal Rate of Return (ATIRRI The attached Excel spreadsheet might help you to put all information and required calculations in an organised way! CHINT: you are doing all match the value in cell E14 should be 13,090.94) (a) If you can earn a 45 al return on other investments, investing your money into this house and selling it after 2 years is a "T" for "good" or "2" for "bad") de financially. That's because the calculated IRR IS use "1" for greater than or for "lower 5 ES 1 w R Y O S F H G J L ? C V N Z M - a 30 control Option Command Command (a) If you can earn a 45% annual return on other investments, investing your money into this house and selling it after 2 years is a v (use "1" for "good" or "2" for "bad") idea financially. That's because the calculated IRR IS (use "1" for greater than" or "2" for "lower than") the 20% required annual return. The calculated after-tax IRR equals (round to 2 decimal places; use "O" for any blank values (b) If you can earn a 45 annual return on other investments, investing your money into this house and selling it after 3 years is a (use "1" for "good" or "2" for "bad") idea financially. That's because the calculated IRR IS (use "1" for "greater than" or "2" for "lower than") the 45 required annual return. The calculated after tax IRR equals % (round to 2 decimal placer use" for any blank values) c) Using 456 as your required return, in order for you to be indifferent between buying and not buying for 3 years, the LTV needs to approximately equal CHINT: Use goal seek in Excel 5 1 2 3 6 w E R T Y 1 . S D H F 6 > Z C V B N M 2 1 30 Command command contro option Spon The house you like costs $200,000. You expect home values to increase by 10% every year. Property taxes: 2% of house value, due at the end of each year. In other words, the property taxes due at the end of year 1 are based on the house value in year 0.) Maintenance: $1,000 per year. You would take a home mortgage loan with an LTV of 80%. Loan information: 30-year term, fully amortizing with fixed annual payments, 5% annual interest rate, remaining balance due upon house sale. When you sell the house the estimated selling expenses are $5,000, and you expect no capital gain taxes. if you instead rent a house just like this one, you'd be paying $15,000 on rent every year. Your income puts you in a 25 income tax bracket Calculate the after tax cash flows if you buy rather than rent. Use them to calculate the after-tax Internal Rate of Return (ATIRRI The attached Excel spreadsheet might help you to put all information and required calculations in an organised way! CHINT: you are doing all match the value in cell E14 should be 13,090.94) (a) If you can earn a 45 al return on other investments, investing your money into this house and selling it after 2 years is a "T" for "good" or "2" for "bad") de financially. That's because the calculated IRR IS use "1" for greater than or for "lower 5 ES 1 w R Y O S F H G J L ? C V N Z M - a 30 control Option Command Command (a) If you can earn a 45% annual return on other investments, investing your money into this house and selling it after 2 years is a v (use "1" for "good" or "2" for "bad") idea financially. That's because the calculated IRR IS (use "1" for greater than" or "2" for "lower than") the 20% required annual return. The calculated after-tax IRR equals (round to 2 decimal places; use "O" for any blank values (b) If you can earn a 45 annual return on other investments, investing your money into this house and selling it after 3 years is a (use "1" for "good" or "2" for "bad") idea financially. That's because the calculated IRR IS (use "1" for "greater than" or "2" for "lower than") the 45 required annual return. The calculated after tax IRR equals % (round to 2 decimal placer use" for any blank values) c) Using 456 as your required return, in order for you to be indifferent between buying and not buying for 3 years, the LTV needs to approximately equal CHINT: Use goal seek in Excel 5 1 2 3 6 w E R T Y 1 . S D H F 6 > Z C V B N M 2 1 30 Command command contro option Spon
