QUESTION FOUR An investor acquired property five years ago at a cost of Kshs.200,000. This was financed 75% by mortgage and 25% equity. The interest charged was 11% for 25 years payable monthly. The investor uses straight line depreciation method with 80% of the original price allocated to building and 20% land. Assume at the time of purchase the property could be depreciated for 19 years. The investor decides to renovate at an additional cost Ksh.200,000 financed 157 by loan and equity 25% at an interest of 11% for 15 years. The Net operating Income in year six after renovation is Kshs.45,000 and thereafter growing at 4% per year. The property may be sold at end of year 10 at Kshs.547,494 before selling cost of 6%. Corporate tax rate is 50% and capital gain tax is 28%. If the property is not renovated it would generate net operating income of Kshs.23,725 in year six growing at 3% per annum. The property may be sold at end of year 10 for Kshs.289,819 before selling cost of 6%. Required: (25 marks Should the investor renovate? Show your workings, QUESTION FOUR An investor acquired property five years ago at a cost of Kshs.200,000. This was financed 75% by mortgage and 25% equity. The interest charged was 11% for 25 years payable monthly. The investor uses straight line depreciation method with 80% of the original price allocated to building and 20% land. Assume at the time of purchase the property could be depreciated for 19 years. The investor decides to renovate at an additional cost Ksh.200,000 financed 157 by loan and equity 25% at an interest of 11% for 15 years. The Net operating Income in year six after renovation is Kshs.45,000 and thereafter growing at 4% per year. The property may be sold at end of year 10 at Kshs.547,494 before selling cost of 6%. Corporate tax rate is 50% and capital gain tax is 28%. If the property is not renovated it would generate net operating income of Kshs.23,725 in year six growing at 3% per annum. The property may be sold at end of year 10 for Kshs.289,819 before selling cost of 6%. Required: (25 marks Should the investor renovate? Show your workings