6-76 An office building should last 60 years, but thisowner will sell it at 20 years for 40% of its con-struction cost. For the first 20 years it can be leasedas Class A space, which is all this owner operates.When the building is sold, the land's cost will berecovered in full.$2.2MLand$4.1MBuilding$640,000 Annual operating and maintenanceAnnual property taxes and insurance(% of initial investment)(a) If the owner wants a 12% rate of return, what isthe required monthly leasing cost?(b) Assuming that the building is vacant 5% of thetime, what is the required monthly lease?(c) What is an example monthly cost per square footfor Class A space in your community?4%

Given, Total life of office building = 60 years Useful for lease = 20 years Land = $2.2 M =…

6-76 An office building should last 60 years, but this owner will sell it at 20 years for 40% of its con- struction cost. For the first 20 years it can be leased as Class A space, which is all this owner operates. When the building is sold, the land's cost will be recovered in full. $2.2M Land $4.1M Building $640,000 Annual operating and maintenance 4% Annual property taxes and insurance (% of initial investment) (a) If the owner wants a 12% rate of return, what is the required monthly leasing cost? (b) Assuming that the building is vacant 5% of the time, what is the required monthly lease?

6-76 An office building should last 60 years, but this owner will sell it at 20 years for 40% of its con- struction cost. For the first 20 years it can be leased as Class A space, which is all this owner operates. When the building is sold, the land's cost will be recovered in full. $2.2M Land $4.1M Building $640,000 Annual operating and maintenance 4% Annual property taxes and insurance (% of initial investment) (a) If the owner wants a 12% rate of return, what is the required monthly leasing cost? (b) Assuming that the building is vacant 5% of the time, what is the required monthly lease?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which is the answer?
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12-3 AFTER-TAX SALVAGE VALUE Karsted Air Services is now in the final year of a project. The equipment originally cost $29 million, of which 100% has been depreciated. Karsted can sell the used equipment today for $8 million, and its tax rate is 25%. What is the equipment's after-tax salvage value?
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