QUESTION 1 An individual is planning to pay $400,000 cash for a small motel (ie., 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). 5. year Annual Income S 4. 6. 32,500 23,800 34,000 24,500 36,000 26,500 What is the post-tax Internal Rate of Return (IRR) of this investment and does it make sense, if MARR is 10%? The individuals tax bracket is 22% and the capital gains rate is 25%. Assume that the purchase and sale take place January 1 of the year NOTE: This is considered as a residentail property with a service life of 27.5 years
QUESTION 1 An individual is planning to pay $400,000 cash for a small motel (ie., 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). 5. year Annual Income S 4. 6. 32,500 23,800 34,000 24,500 36,000 26,500 What is the post-tax Internal Rate of Return (IRR) of this investment and does it make sense, if MARR is 10%? The individuals tax bracket is 22% and the capital gains rate is 25%. Assume that the purchase and sale take place January 1 of the year NOTE: This is considered as a residentail property with a service life of 27.5 years
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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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).
уear
Annual
Income $
2.
3
4.
15
9.
32,500
23,800
36,000
34,000
24,500
26,500
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 19 of the year.
NOTE: This is considered as a residentail property with a service life of 27.5
years
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