Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $570,000-that is, $55,000 for the land and $515,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows: a. Keep the property. Martinas's accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Martinas makes a $12,875 mortgage payment each year on the property. The mortgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $77,250 for the building, which he still thinks is an appropriate figure. He feels sure that the building can be rented for another 15 years. He also feels sure that 15 years from now the land will be worth three times what he paid for it. $ 208,000 Rental receipts Less: Building expenses: Utilities Depreciation of building Property taxes and insurance Repairs and maintenance Custodial help and supplies Net operating income $ 26,300 17,510 20,200 18,000 61,500 143,510 $ 64,490 b. Sell the property. A realty company has offered to purchase the property by paying $265.000 immediately and $49.000 per year for the next 15 years. Control of the property would go to the realty company immediately. To sell the property, Martinas would need to pay the mortgage off, which could be done by making a lump-sum payment of $112,500. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: Assume that Martinas requires a 12% rate of return. Compute net present value in favor of (or against) keeping the property using the total-cost approach. (Round discount factor(s) to 3 decimal places and other intermediate calculations to the nearest dollar amount.) Net present value Would you recommend that he keep or sell the property? O keep the property O Sell the property EXHIBIT 10-1 Present Value of $1 FR P= n (1 + r)" 6 Period 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 40% 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0 806 0794 0.781 0.769 0.714 2 0925 0.907 0890 0.857 0.826 0797 0.769 0743 0.718 0694 0.672 0650 0.630 0610 0.592 0.510 3 0 889 0864 0 840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.551 0.524 0.500 0.477 0.455 0.364 4 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.451 0.423 0.397 0.373 0.350 0.260 5 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.519 0.476 0.437 0.402 0.370 0.341 0.315 0.291 0.269 0.186 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.303 0.275 0.250 0.227 0.207 0.133 7 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 0.249 0.222 0.198 0.178 0.159 0.095 S 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.351 0.305 0.266 0.233 0.204 0.179 0.157 0.139 0.123 0.068 9 0.703 0.6450.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.167 0.144 0.125 0.108 0.094 0.048 10 0.676 0.614 0.58 0.463 0.356 0.322 0.270 0.227 0.191 0.162 0.137 0.116 0.099 0.035 0.073 0.035 11 0.650 0.585 0.527 0.429 0.350 0.287 0237 0.195 0.162 0.135 0.112 0.094 0.079 0.066 0.056 0.025 12 0.625 0.557 0.497 0.397 0.319 0.257 0.205 0.208 0.168 0.137 0.112 0.092 0.076 0.062 0.052 0.043 0.018 13 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 0.075 0.061 0.050 0.00 0.033 0.013 14 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 0.062 0.049 0.039 0.032 0.025 0.009 15 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.054 0.065 0.051 0.040 0.031 0.025 0.020 0.006 16 0.534 0.458 0.458 0.394 0.292 0.218 0.163 0.123 0.093 0.071 0.054 0.042 0.032 0.025 0.019 0.015 0.005 17 0.513 0.436 0.270 0.198 0.146 0.108 0.050 0.060 0.045 0.034 0.026 0.020 0.015 0.012 0.003 IS 0.494 0.416 0.350 0.250 0.150 0.130 0.095 0.069 0.051 0.038 0.028 0.021 0016 0.0120.009 0.002 19 0.475 0.396 0.331 0.232 0.164 0.116 0.083 0.060 0.043 0.031 0.023 0.017 0012 0.009 0.007 0.002 20 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 0.019 0.014 0.010 0.007 0.005 0.001 21 0.439 0.359 0.294 0.199 0.135 0.093 0.064 0.044 0.031 0.022 0.015 0.011 0.008 0.006 0.004 0.001 22 0.422 0.342 0.278 0.184 0.123 0.083 0.056 0.038 0.026 0.018 0013 0009 0006 0.004 0.003 0.001 23 0.406 0.326 0.262 0.170 0.112 0.074 0.049 0.033 0.022 0.015 0010 0.007 0.005 0.003 0.002 24 0.390 0.310 0.247 0.158 0.1020.066 0.043 0.028 0.019 0.013 0.008 0.006 0.004 0.003 0.002 25 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.024 0.016 0.010 0.007 0.005 0.003 0.002 0.001 26 0.361 0.281 0.220 0.135 0.084 0.053 0.033 0.021 0.014 0.009 0.006 0.004 0.002 0.002 0.001 27 0.347 0.268 0.207 0.125 0.076 0.047 0.029 0.018 0.011 0.007 0.005 0.003 0.002 0.001 0.001 28 0.333 0.255 0.196 0.116 0.069 0.042 0.026 0.016 0.010 0.006 0.004 0.002 0.002 0.001 0.001 29 0.321 0.243 0.185 0.107 0.063 0.037 0.022 0.014 0.008 0.005 0.003 0002 0.001 0.001 30 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 0.003 0.002 0.001 0.001 40 0.208 0.142 0.097 0.097 0046 0.022 0.011 0.005 0.003 0.001 0.001 0.371 EXHIBIT 10-2 Present Value of an Annuity of $1 1 P = Cont n Period 4% 5% 6% 8% 10% % % 12% 24% 26% 28% 30% 40% 0 806 0.794 0.781 0.769 0714 1 0.962 0.952 0.943 0.926 14% 16% 18% 20% 22% % 0.877 0.862 0.847 0.833 0820 1.647 1.605 1.566 1.528 1.492 0909 0.893 2 1.886 1.859 1.833 1.783 1.736 1.690 1.457 1424 1.392 1.361 1.224 3 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.923 1.868 1.816 1.589 4 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.320 2241 2.166 1879 5 4.452 4.330 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.635 2.532 2.436 2.035 6 5.242 5.076 4917 4.623 4.355 4.111 3.889 3.685 3.498 3326 3.167 3.020 2.885 2759 2.643 2.168 7 6 002 5.786 5.582 5.206 4.868 4.564 S 6.733 6.463 6.210 5.747 5.335 4.968 9 7.435 7.108 6.802 6.247 5.759 5,328 10 S.111 7.722 7.360 6.710 6.145 5.650 11 8.760 S.306 7.887 7.139 6.495 5.938 12 9.355 S. 863 8.384 7.536 6.814 6.194 4.288 4.039 3.812 3.605 3.416 3.242 3.083 2937 2.802 2.263 4.639 4.344 4.078 3.837 3.619 3.421 3.241 3.076 2.925 2.331 4.946 4.607 4.303 4.031 3.786 3.566 3.366 3.184 3.019 3.019 2.379 5.216 4.833 4.494 4.192 3.923 3.662 3.465 3.269 3.092 2.414 5.453 5.029 4.656 4.327 4.035 3.776 3.544 3.335 3.147 2.438 5.660 5.197 4.793 4.439 4.127 3.851 3.606 3.387 3.190 2.456 5.842 5.342 4.910 4.533 4.203 3.912 3.656 3.427 3.427 3.223 2.468 6.002 5.468 5.00$ 4.611 4.265 3.962 3.695 3.459 3.249 2.477 6.142 5.575 5.092 4.675 4.315 4.001 3.726 3.483 3.268 2.484 6.265 5.669 5.162 4.730 4.357 4.033 3.751 3.503 3.283 2.489 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3518 3.295 2.492 13 9986 9.394 8.853 7.904 7.103 6.424 14 10.563 9.899 9.295 8.244 7367 6.628 15 11.118 10.380 9.712 8.559 7.606 6.811 16 11.652 10.838 10.106 8.851 7.824 6.974 17 12.166 11.274 10.477 9.122 8.022 7.120 IS 12 659 11.690 10.828 9372 8.201 7.250 6.467 5.818 5.273 4.812 4.419 4.080 19 13.134 12.085 11.158 9.604 8.365 7.366 6.550 5.877 5.316 4.844 4.442 4.097 3.786 3.529 3304 2.494 3.799 3.539 3.539 3.311 2.496 3.SOS 3.546 3.316 2.497 20 13.590 12.462 11.470 9 818 8.514 7.469 6,623 5.929 5.353 4.870 4.460 4.110 21 14 029 12.821 11.764 10 017 8.649 7.562 6 687 5.973 5.384 4.891 4.476 4.121 22 14.451 13.163 12.042 10 201 8.772 7.645 6.743 6.011 5.410 4.909 4.488 4.130 3.816 3.551 3.320 2.498 3.822 3.556 3.323 3.323 2.498 4.137 3.827 3.325 2.499 23 14.857 13.489 10 371 8.883 7.718 6.792 6.792 6044 5.432 4.925 4.499 12.303 12.550 24 15 247 13.799 10.529 8.985 7.784 6835 6.835 6.073 5.451 4.937 4.507 4.143 3.831 3.327 2.499 25 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.873 6.097 5.467 4.948 4.514 4.147 3.834 3.329 2.499 26 15.983 14.375 13.003 10.810 9.161 7.896 6.906 6.906 6.118 5.480 4.956 4.520 4.151 3.837 3.330 2.500 27 16.330 14.643 13.211 10.935 9.237 7943 6.935 6.935 6.136 5.492 4964 4.525 4.154 3.839 3.331 2.500 28 16.663 14.898 13.406 11.051 9.307 7.984 6.961 6.961 6.152 5.502 4.970 4.528 4.157 3.840 3.331 2.500 29 16.984 15.141 13.591 11.158 6.983 6.166 5.510 4.975 4.531 4.159 3.841 3.332 2.500 9.370 8.022 6.983 8.055 7.003 30 17.292 15.373 13.765 11.258 9.427 7.003 6.177 5.517 4979 4.534 4.160 3.842 3.332 2.500 40 19.793 17.159 15.046 11.925 9.779 8.244 7.105 7.105 6.234 5.543 4.997 4.544 4.166 3.846 3.333 2.500