Homework Help is Here – Start Your Trial Now!
Business
Accounting
ash for pre-tax

ash for pre-tax

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
QUESTION 1 An individual is planning to pay $400,000 cash for a small motel (i.e., price inludes the land valued at $40,000). This porperty has the following expected gross pre-tax income over the next 6 years and then can be sold for $380,000 (land still valued at $40,000). 1 3 4 6 year Annual 32,500 23,800 34,000 24,500 36,000 26,500 Income $ What is the post-tax Internal Rate of Return (IRR) of this investment and does it make sense, if MARR is 10%? The individual's tax bracket is 22% and the capital gains rate is 25%. Assume that the purchase and sale take place January 1st of the year. NOTE: This is considered as a residentail property with a service life of 27.5 years. Attach File
Transcribed Image Text:QUESTION 1 An individual is planning to pay $400,000 cash for a small motel (i.e., price inludes the land valued at $40,000). This porperty has the following expected gross pre-tax income over the next 6 years and then can be sold for $380,000 (land still valued at $40,000). 1 3 4 6 year Annual 32,500 23,800 34,000 24,500 36,000 26,500 Income $ What is the post-tax Internal Rate of Return (IRR) of this investment and does it make sense, if MARR is 10%? The individual's tax bracket is 22% and the capital gains rate is 25%. Assume that the purchase and sale take place January 1st of the year. NOTE: This is considered as a residentail property with a service life of 27.5 years. Attach File
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Sales and Other Dispositions of Assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS