John presently owns an office building, which is 30 years old, and is considering renovating it.Assume that if John does the renovation, he will be able to obtain a new loan that is equal tothe balance of the existing loan plus 75% of the renovation costs. Assume a five-year holdingperiod. Below is the information about the property and John's estimation if he does therenovation.CURRENTIF RENOVATEDPurchase PriceBuilding ValueLand ValueLoan-to-value ratioRenovation CostInitial Increase in NOI (year 4)Annual Increase in NOIResale Value after holding 5 yearsSelling ExpensesNew Loan:1,000,000400,000800,00020.00%200,0003.00%1,523,0003.00% of sale price75.00%Interest9.00%Term30 yearsInterest RateTermPayments per year11.00%Payments per yearYears since PurchasedCurrent NOI (year 4)Projected Increase in NOIResale Value TodayDepreciable LifeOrdinary income tax ratePrice appreciation tax rateDepreciation recapture tax rate1230 years90,000122.00% per year1,050,00039 years28.00%28.00%28.00%What is the capital gain tax from the property sale by the end of year 8 if John does renovate the property?(Choose the nearest value)O $45,949O $43,077O $60,308O $81,955

Income tax: The income tax refers to the amount that is paid by the taxpayer to the tax authority of…

John presently owns an office building, which is 30 years old, and is considering renovating it. Assume that if John does the renovation, he will be able to obtain a new loan that is equal to the balance of the existing loan plus 75% of the renovation costs. Assume a five-year holding period. Below is the information about the property and John's estimation if he does the renovation. CURRENT IF RENOVATED Purchase Price 1,000,000 Renovation Cost 400,000 Building Value 800,000 Initial Increase in NOI (year 4) 20.00% Land Value 200,000 Annual Increase in NOI 3.00% Loan-to-value ratio 75.00% Resale Value after holding 5 years 1,523,000 Interest 9.00% Selling Expenses 3.00% of sale price Term 30 years New Loan: Payments per year Years since Purchased Current NOI (year 4) Projected Increase in NOI Resale Value Today Depreciable Life Ordinary income tax rate Price appreciation tax rate 12 3 Interest Rate 11.00% Term 90,000 Payments per year 30 years 12 2.00% per year 1,050,000 39 years 28.00% 28.00% Depreciation recapture tax rate 28.00% What is the capital gain tax from the property sale by the end of year 8 if John does renovate the property? (Choose the nearest value) O $45,949 ○ $43,077 ○ $60,308 ○ $81,955

John presently owns an office building, which is 30 years old, and is considering renovating it. Assume that if John does the renovation, he will be able to obtain a new loan that is equal to the balance of the existing loan plus 75% of the renovation costs. Assume a five-year holding period. Below is the information about the property and John's estimation if he does the renovation. CURRENT IF RENOVATED Purchase Price 1,000,000 Renovation Cost 400,000 Building Value 800,000 Initial Increase in NOI (year 4) 20.00% Land Value 200,000 Annual Increase in NOI 3.00% Loan-to-value ratio 75.00% Resale Value after holding 5 years 1,523,000 Interest 9.00% Selling Expenses 3.00% of sale price Term 30 years New Loan: Payments per year Years since Purchased Current NOI (year 4) Projected Increase in NOI Resale Value Today Depreciable Life Ordinary income tax rate Price appreciation tax rate 12 3 Interest Rate 11.00% Term 90,000 Payments per year 30 years 12 2.00% per year 1,050,000 39 years 28.00% 28.00% Depreciation recapture tax rate 28.00% What is the capital gain tax from the property sale by the end of year 8 if John does renovate the property? (Choose the nearest value) O $45,949 ○ $43,077 ○ $60,308 ○ $81,955

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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