Suppose that you are considering speculating on some vacant land located on Bali Hai, an island in the South Pacific. You could acquire the land today for $850,000. You plan on holding it for fifteen years and then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be $35,000, paid at the end of the first year. These costs will increase annually at a 2.5% rate until you sell the land at the end of the fifteenth year. minimum amount that you have to net (after commissions, transfer taxes, fees, etc.) on the sale of this land at the end of the final year to earn your required rate of return? (Ignore income taxes) If you require an annual rate of return of 20%, what is the
Suppose that you are considering speculating on some vacant land located on Bali Hai, an island in the South Pacific. You could acquire the land today for $850,000. You plan on holding it for fifteen years and then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be $35,000, paid at the end of the first year. These costs will increase annually at a 2.5% rate until you sell the land at the end of the fifteenth year. minimum amount that you have to net (after commissions, transfer taxes, fees, etc.) on the sale of this land at the end of the final year to earn your required rate of return? (Ignore income taxes) If you require an annual rate of return of 20%, what is the
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
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Transcribed Image Text:2. Suppose that you are considering speculating on some vacant land located on Bali Hai, an island in the
South Pacific. You could acquire the land today for $850,000. You plan on holding it for fifteen years and
then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be
$35,000, paid at the end of the first year. These costs will increase annually at a 2.5% rate until you sell
the land at the end of the fifteenth year.
If you require an annual rate of return of 20%, what is the
minimum amount that you have to net (after commissions, transfer taxes, fees, etc.) on the sale of this
land at the end of the final year to earn your required rate of return? (Ignore income taxes)
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