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 $573,500-that is, $51,500 for the land and $522,000 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 $13,050 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 $78,300 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. $ 181,000 Rental receipts Less: Building expenses: Utilities Depreciation of building Property taxes and insurance Repairs and maintenance Custodial help and supplies Net operating income $29,600 17,748 19,300 12,700 62,250 141,598 $ 39, 402 b. Sell the property. A realty company has offered to purchase the property by paying $216,000 immediately and $33,750 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 $136,500. 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? Keep the property Sell the property 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 8 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.204 0.179 0.157 0.139 0.123 0.068 9 0.703 0.645 0.592 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 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 0.137 0.116 0.099 0.085 0.073 0.035 11 0.650 0.585 0.527 0.429 0.350 0.287 0.237 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 0.208 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 0.040 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 0.084 0.065 0.051 0.040 0.031 0.025 0.020 0.006 16 0.534 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 0.371 0.270 0.198 0.146 0.108 0.080 0.060 0.045 0.034 0.026 0.020 0.015 0.012 0.003 18 0.494 0.416 0.350 0.250 0.180 0.130 0.095 0.069 0.051 0.038 0.028 0.021 0.016 0.012 0.009 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 0.012 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 0.013 0.009 0.006 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 0.010 0.007 0.005 0.003 0.002 24 0.390 0.310 0.247 0.158 0.102 0.066 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 0.016 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 0.002 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 0.046 0.022 0.011 0.005 0.003 0.001 0.001 EXHIBIT 10-2 Present Value of an Annuity of $1 1 1 Pn (1 + r)" + Period 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 40% 1 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.794 0.781 0.769 0.714 2 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.424 1.392 1.361 1.224 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 3 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 2.241 2.166 1.879 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 5 6 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.885 2.759 2.643 2.168 7 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.083 2.937 2.802 2.263 6.733 6.463 6.210 5,747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.241 3.076 2.925 2.331 8 9 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.366 3.184 3.019 2.379 10 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.662 3.465 3.269 3.092 2.414 11 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.544 3.335 3.147 2.438 12 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.606 3.387 3.190 2.456 13 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.656 3.427 3.223 2.468 14 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.695 3.459 3.249 2.477 15 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.726 3.483 3.268 2.484 16 11.52 10.838 10.106 8.851 7.824 6.974 6.265 5.669 5.162 4.730 4.357 4.033 3.751 4.033 3.751 3.503 3.283 2.489 17 12.166 11274 10.477 9.122 8.022 7.120 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3.518 3.295 2.492 18 12.659 11.590 10.828 9372 8.201 7.250 6.467 5.818 5.273 4.812 4.419 4.080 3.786 3.786 3.529 3.304 2.494 19 13.134 12.085 11.158 9.604 8.365 7366 6.550 5.877 5.316 4.844 4.442 4.097 4.097 3.79 3.539 3.311 2.496 20 13.590 12.462 11.470 9818 8.514 7.469 6.623 5.929 5,353 4.870 4.460 4.110 3.808 3.546 3.316 2.497 21 14.029 12.821 11.764 10.017 8.649 7.562 6.687 5.973 5.384 4.891 5.973 5.384 4,891 4.476 4.121 3.816 3.551 3.320 2,498 22 14.451 13.163 12.042 10.201 8.772 7.645 6743 6.011 5.410 4.909 4.488 4.130 3.822 3.556 3.323 2.498 23 14.857 13.489 12.303 10.371 8.883 7718 6.792 6.044 5.432 4.925 4.499 4.137 3.827 3.559 3.325 2.499 24 15.247 13.799 12.550 10.529 8.985 7.784 6.835 6.073 5.451 4,937 4,507 4.143 3.831 3.562 3.327 2,499 25 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097 5.467 4.948 4.514 4.147 3.834 3.564 3.329 2.499 26 15.983 14.375 13.003 10810 9.161 7.89 6.906 6.118 5.480 4.956 4.520 4.151 3.837 3.566 3.330 2.500 27 16.330 14.643 13.211 10.935 9.237 7.943 6935 6.136 5.492 4.964 4.525 4.154 3.839 3.567 3.331 2.500 28 16.663 14.898 13.406 11.051 9.307 7.984 6.961 6.152 5.502 4.970 4.528 4.157 3.840 3.568 3.331 2,500 29 16.984 15.141 13.591 11.158 9.370 8.022 6.983 6.166 5.510 4.975 4,531 4.159 3.841 3.569 3.332 2.500 30 17292 15.373 13.765 11258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.534 4.160 3.842 3.569 3.332 2.500 40 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.846 3.571 3.333 2.500