A house and lot are for sale for $155,000. It is estimated that $45,000 is the land’s value and $110,000 is the value of the house. The net rental income would be $12,000 per year after taking all expenses, except depreciation, into account. The house would be depreciated by straightline depreciation using a 27.5-year depreciable life and zero salvage value. Mary Silva, the prospective purchaser, wants a 10% after-tax rate of return on her investment after considering both annual income taxes and a capital gain when she sells the house and lot. At what price would she have to sell the house at the end of 10 years to achieve her objective? Assume that Mary has an incremental income tax rate of 24% in each of the 10 years and a capital gain rate of 20%.
A house and lot are for sale for $155,000. It is estimated that $45,000 is the land’s value and $110,000 is the value of the house. The net rental income would be $12,000 per year after taking all expenses, except depreciation, into account. The house would be
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