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Sam, the youngest of four, will graduate in industrial engineering this June. His future plans have not solidified yet, but his parents clearly believe that
Sam, the youngest of four, will graduate in industrial engineering this June. His future plans have not solidified yet, but his parents clearly believe that he will be selfsupporting. In fact, they are planning on selling their home, taking a world cruise, and investing for their retirement.
Sam has been asked by his parents to spend part of his semester breakholidays helping them analyze a plex that they are considering buying. The building is part of a rental complex with cooperative management of the pool and parking areas. The complex is about years old, and it appears stable and desirable.
Sam realizes that other investments might be more appropriate, but they are not interested in his general advice. Rather, they have asked him to calculate the highest price that they could afford to offer for the plex and still meet their financial goals the asking price is $
Also, they have asked him to ignore the impact of inflation and taxes for this preliminary financial analysis since their future financial position and the future tax laws are both unclear.
They have developed some information, but they suspect some may be missing. Since they are gone for the evening, and Sam wants to ski tomorrow, he plans on guesstimating any missing numbers. This will give his parents a preliminary estimate, and it will involve them in the iterations to a sufficiently accurate answer.
Financing for the purchase will come in two pieces. The down payment will be part of the proceeds from the sale of their home, while the other will be financed with a year mortgage. In discussing this interest rate, his parents also mentioned that their long term investments in the stock market had averaged an annual rate of return of about
The annual operating costs for the plex, as reported by the current owner, have been about $ for water and sewer, $ for lawn mowing, and a $ assessment from the cooperative poolparking authority. The renters pay for their own electricity and natural gas. Property taxes are calculated at of the assessed value, and properties are assessed at of market prices with biannual adjustments by the city. The city currently appraises the property at $ for the building and $ for the land. Insurance for fire and liability is of the buildings value.
Rents for these and other similar units in the cooperative have been fairly stable at $month or $month for longterm leases.
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