Problem $7-5$

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You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who

defaulted on his loan. First Capital is offering the property for $$296,000.$ If you buy the property, you believe that you will have to

spend $(1)$ $$12,100$ on various acquisition$-$related expenses and $(2)$ an average of $$3,600$ per month during the next $12$ months for repair

costs, and so on$,$ in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is

willing to provide $$276,000$ in financing at $4\mathrm{.}25$ percent interest for $12$ months payable monthly $($interest only$).$ Your market research

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indicates that after you repair the property, it may sell for about $$350,000$ at the end of one year. Furthermore, you will probably have

to pay about $$4,600$ in fees and selling expenses in order to sell the property at that time.

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Required:

a$.$ If you wanted to earn a $20$ percent return compounded monthly, do you believe that this would be a good investment?

b$.$ What would you need to sell the property for in order to achieve the $20$ percent return?

Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar.