Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?

Lucy bought a house for $100,000. Lucy's annual cost of ownership net of tax savings is exactly equal to the annual rent she would have paid to live in the same house. The house price grows 4.5% annually (compounded annually). Suppose buying costs are 5% (of the purchase price of the house) and selling costs are 8% (of the selling price of the house). Lucy owns the house for 30 years. Lucy buys the home with an 80% LTV IO mortgage. The interest rate is irrelevant because the cost of ownership net tax shield is equal to rent. What is Lucy's annualized IRR?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Susan's annual salary is $50,000. She contributes 10% of her salary to her 401(k) plan; and her employer contributes 6% of her salary to a profit sharing plan. She also contributes $3,000 per year to an IRA. What is Susan's approximate savings rate?
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Rachel owns 100 percent of a gift shop with an equity value of $150,000. If she keeps the shop open 5 days a week, EBIT is $75,000. If the shop remains open 6 days a week, EBIT increases to $92,000 annually. Rachel needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent. The principal amount would be repaid in equal annual payments at the end of the next five years. Ignore taxes. What will be the cash flow for the year to Rachel if she issues debt, remains open 5 days a week, and distributes all the residual cash flow to the shareholders? Multiple Choice $46,125 $61,500 $65,000 $71,500 $67,880
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Laura wants to buy a delivery truck. The truck costs $124,000 , and will allow her to increase her after tax profits by $18,000 per year for the next 10 years. She will borrow 92% of the cost of the truck for 10 years, at an interest rate of 6%. Laura’s unlevered cost of capital is 12% and her tax rate is 35%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.
Roberto bought a $290,000 house, paying 14% down, and financing the rest at 4.2% interest for 30 years. Her monthly payments are $1219.61. How much will he really pay for her $290,000 house?
Max wants to buy a house, to put on his lot, to hold his giant cheese refrigerator. Max buys a$2,000,000 house and makes a $500,000 down payment. Themortgage is for 30 years at 4% compounded monthly. The first payment will be made one month after thepurchase of the house.a) How much are Max’s monthly payments?b) How much of the 300the payment goes to the principal and how much goes to interest? TVM FORMULA
Erica is planning on putting an addition on her home. She figures that this will cost a total of $25,800. If Erica already has $23,300 saved up, what annual interest rate compounded semiannually would Erica need to earn in order to have the required landscaping funds if she invests her money for 2.5 years?
Bill and Pam Silver are both age 38, and they have two children, ages eight and five. Bill earns $65,000 per year, and Pam works at home with the children. The income Pam needs at the beginning of each year is $40,000, and expected annual after-tax income and benefits to her from all sources, exclusive of Bill's salary, equal $32,000. Using an annual inflation rate of 3% and an after-tax yield of 5%, what amount of life insurance is needed, if Bill were to die today, to provide an income fund for Pam assuming she expects to live to age 90 and has no expectation of retaining any of the principal?

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