Tamily purchas a second home to use for short term rentals near the beach. If it purchases the house, they will place a down payment of $64,000 on the house. They estimate they will get an annual net rental profit of $8,500 after their mortgage and expenses are paid. After 18 years, they plan to pass the rental home alonc to their children, so assume the home has negligible salvage value. What would be the ERR if the Petersik family decides to invest in a rental home, assuming they keep the home for 18 years? Assume their MARR is 13%. Should the Petersik family invest in the rental home?

Tamily purchas a second home to use for short term rentals near the beach. If it purchases the house, they will place a down payment of $64,000 on the house. They estimate they will get an annual net rental profit of $8,500 after their mortgage and expenses are paid. After 18 years, they plan to pass the rental home alonc to their children, so assume the home has negligible salvage value. What would be the ERR if the Petersik family decides to invest in a rental home, assuming they keep the home for 18 years? Assume their MARR is 13%. Should the Petersik family invest in the rental home?

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

See similar textbooks

Similar questions

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160, 000. Bill expects the after-tax cash inflows to be $ 40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required return is 10% . What is the project's discounted payback period (nearest year)?
Craig decides to purchase a property that has been valued at $480,000. He has $90,000 available as a deposit and will require a mortgage for the remaining amount. The bank offers him a 25 year mortgage at 2% interest. Calculate the total interest he will pay over the life of the loan, assuming he makes monthly payments.
Manshukh
You are trying to evaluate the feasibility of purchasing a quarter-acre plot (approximately 11,000 square feet) of agricultural land that has proper drainage and access to paved roads. You plan to rent the plot of land to receive after-tax receipts of US$2,500 per month. You are hoping to sell the land in the next ten years to receive after-tax proceeds of US$2.0 million to purchase a building containing at least four (two-bedroom) apartments. Assume the funds for purchasing the apartment will be drawn from your savings account which is currently earning 2% after taxes and that inflation rate is currently 5%. 1.Showing all calculations state if you should purchase the land for $1.6 million, justify your decision. What is the maximum price you should pay to acquire the single dwelling unit?
The Bainter family is moving to a new town and needs a place to live. The Bainters are considering renting or purchasing a home and have found a suitable option for each option. • The home for sale is listed at $150,000.00. They have $30,000.00 for a down payment and are qualified for a fixed rate 30-year mortgage with an annual interest rate of 4.2%. • The rental home is currently $900.00 per month, with rent expected to increase approximately $75.00 every 4 years. 1. Calculate the monthly mortgage payment amount using the formula: M = P_*(¹+r)" (1+r)"=1* 2. For each option, calculate the total costs after 1 year, 5 years, 10 years and 15 years. Include additional costs of home ownership such as taxes and home insurance. 3. Consider advantages and disadvantages of renting versus purchasing a home. 4. Determine which option is better over each interval: 1 year, 5 years, 10 years and 15 years. Defend conclusions with evidence. Here is the rubric for your project Factors to Consider Each…
Mr. Russ T. Steele sels his old vehicle for $5000 (you get more if you private sale!) and pays cash for a used (but newer vehicle) that costs $10.000. He also understands that he needs to allow for maintenance and operation costs of his vehicle. He estimates that these costs will be approximately $2000 a year and estimates that the costs will increase by $100 per year. He hopes to keep the vehicle for five years and then sell it for an estimated value of $2000. Mr. Steele has an MARR of 8%. The equivalent annual cost of the cash flow associated with his purchase is most nearly: $-1,850 $-3,100 $3,000 $3,800
The Rite family wishes to insulate the attic of their home to prevent heat loss. They are considering R-11 and R-19 insulation. They can install R-11 for $1,600 and R-19 for $2,400. They expect to save $125 per year in heating and cooling expenses if R-11 is installed. How much extra must they save in utility expenses per year in order to justify the R-19 insulation if they expect to recover the extra cost in 6 years at an interest rate of 6% per year? The extra savings from the utility expenses per year in order to justify the R-19 insulation must be $( per year.
The Jacksons are considering selling their current residence, buying a small home near Avery’s parents for $220,000 with a $100,000 30-year mortgage at 3.5%, and investing the net proceeds in their retirement accounts and education accounts. They assume they will incur 2% in transaction costs for the purchase and 6% for the sale. They have asked you the following: What will be their payment (principal and interest only) on their new home? How much will they be able to invest in their retirement accounts and education accounts after selling the old house and buying the new house? If the Jacksons purchase the new house one year from today, what will be the balance on their mortgage when they retire? What is the income tax consequence of their sale and purchase strategy?
Alexandra and Beatrice are deciding where to live during college. Alexandra can live at her parents house which costs nothing and provides a value of $500 to her. Beartice can lease an apartment by herself providing a value of $1000 at the cost of $600. Alexandra and Beatrice can also live together which still costs $600 and provides $1000 of value to both. Beatrice already lives in the apartment, but to move in will cost Alexandra $100. A. Find the outside option value for each person Ex Ante B. What is the maximum total benefit generated by people working together? C. Find the nash bargaining payoff for each person. Ex Post Now assume that Alexandra has moved in and incurred the cost. Alexandra cannot live with her parents unless she moves back, costing another $100. D. Find the new outside option for each person. E. Find the new nash bargaining payoff for each person.
Marty decides to purchas a paddlewheel boat to start a riverboat casino business. The boat costs one million dollars. He acquires a 10 year loan that has an annual interst rate of 2.5%, compounded weekly. What are the weekly payments on this loan? After one year, due to a donation by a silent partner, Marty is able to pay off the remainder of the loan. How much will this be?
Your parents buy a new house to downsize. They pay $250,000 and are planning on paying it off in a 15 year loan with equal annual payments of $19,167. What interest rate do you evaluate them to be paying on the loan?
help

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS