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

Problem 1PS

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The initial investment in machinery would be $8 million immediately and the project is expected to last for three years. Investment in machinery receives tax allowable depreciation of 25% per annum on a straight-line basis. Allowances are receivable one year in arrears. The machinery will be sold at the end of the project for $5 million, in year 3 prices. And the answer is in the picture. How to calculate the answer of Tax Allowable depreciation?
An investment will generate $12,000 a year for 30 years. If you can earn 12 percent on your funds and the investment costs $100,000, calculate the present value of investment. Use Appendix D to answer the question. Round your answer to the nearest dollar.$ Should you buy it?-Select-YesNoItem 2 Calculate the present value of investment, if you could earn only 9 percent. Use Appendix D to answer the question. Round your answer to the nearest dollar.$ Should you buy it in this case?
Suppose you have opened an MRI clinic and you are able to purchase a new MRI machine for $1 million. You plan to see 2000 patients per year, and you have determined that your MRI machine at that rate of use should last 10 years. Given a 5% rate of interest, use an annuity calculation to estimate the annual cost of an MRI per patient. Suppose that you could use the machine for 3 years and then sell it for $500,000. What would your annual cost per patient be in that case? Suppose you know that inflation is going to be 10% per year and that you will use the machine for 3 years and then be able to sell it for $800,000 (note that the $800,000 is measured in units of dollars 3 years from now). What then is your annual cost per patient and is your answer in dollars today or dollars three years from now?
Consider a new machine at a bottling plant that has a first cost of $150000, operating and maintenance costs of $18900 per year, and an estimated net salvage value of $16000 at the end of 30 years. Assume an interest rate of 5%. What is the annual equivalent cost of the investment if the planning horizon is 30 years?
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4,440 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,110 plus an additional investment at the end of the second year of $5,550. What is the NPV of this opportunity if the interest rate is 1.5% per year? What is the NPV of this opportunity if the interest rate is 1.5% per year? The NPV of this opportunity is $_______ (Round to the nearest cent)
You are in discussions to purchase an option on an office building with a strike price of $95 million. The building is currently valued at $92 million. The option will allow you to purchase the building either six months from today or one year from today. Six months from today, accrued rent payments from the building in the amount of $1,070,000 will be made to the owners. If you exercise the option in six months, you will receive the accrued rent payment, otherwise, the payment will be made to the current owners. A second accrued rent payment of $1,070,000 will be paid one year from today with the same payment terms. The standard deviation of the value of the building is 35 percent and the risk-free rate is an annual percentage rate of 7 percent. What is the price of the option today using a two-state model with six-month steps? (Hint. The value of the building in six months will be reduced by the accrued rent payment if you do not exercise the option at that time.) (Do not round…
You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated at a CCA rate of 30% over the next three years. The equipment can be sold at the end of the project for $400,000 (ignore any gains or losses). You plan to borrow half of the equipment cost at a rate of 5.5%. You will also need $200,000 in net working capital maintained over the life of the project. The labour costs are expected to be $100,000 per year, fixed costs will be $175,000 a year and the materials will be $140,000 per building per year. Your required rate of return is 12% for this project. Ignoring taxes, what is the minimal amount, that you should bid per building?
Tanya is considering an investment that will require an initial payment of 400,000 and additional payments of 100,000 and 50,000 at the end of years one and two, respectively. It is expected that revenue from this investment will be 150,000 per year for five years, beginning one year from the initial investment.Assuming an annual effective rate of 10%, calculate the net present value of this investment.
MoreTech Drilling may buy a patent with 14 years of life left. If MoreTech spends $ 1.5M to implement the technology, it expects net revenues of $650, 000 per year for the patent's life. If MoreTech's discount rate for money's time value is 10%, what is the maximum price that MoreTech can pay for the patent?
Your organization is planning to purchase a new office building four years from now. The building will cost $8,000,000, have a useful life of 30 years, and have no salvage value. If your organization currently has put aside $1,500,000 in an investment account with an annual interest rate of 4.8%, how much additional money must your organization deposit into the account each month in order to be able to purchase the building in four years? (select one)
A developer plans to start construction of a building in one year if at that point rent levels make construction feasible. At that time the building will cost $1,340,000 to construct. During the first year after construction would take place, there is a 60 percent chance that NOI will be $175,500 and a 40 percent chance that the NOI will be $88,600. In either case, NOI would be expected to increase at 2 percent per year after the first year. Required: How much should the developer be willing to pay for the land if he wants a 12 percent rate of return? (Round your answer to the nearest whole dollar amount.) Amount payable by developer $ 1,334,444
You can buy a piece of vacant land for $40,000 cash. You plan to hold it for 20 years and then sell it at a profit. During this period, you would pay annual property taxes of $815. You would have no income from the property. (a) Assuming that you want an 8% rate of return, at what net price would you have to sell the land 20 years hence? (b) What is open space conservation and why is it important? What options would you have in selling your property with this in mind?

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