You are considering a luxury apartment building project that requires an investment of $12,500,000. The building has 50 units. You expect the maintenance cost for the apartment building to be $250,000 the first year and $300,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $80,000 per year. After five years of operation, the apartment building can be sold for $14,000,000. What is the annual rent per apartment unit that will provide a return on investment of 15% after tax? Assume that the building will remain fully occupied during the five years. Assume also that your regular tax rate is 35% and the capital gains tax rate is 17.5%. The building has a CCA rate of 4% and will be sold at the end of the fifth year of ownership.
You are considering a luxury apartment building project that requires an investment of $12,500,000. The building has 50 units. You expect the maintenance cost for the apartment building to be $250,000 the first year and $300,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $80,000 per year. After five years of operation, the apartment building can be sold for $14,000,000. What is the annual rent per apartment unit that will provide a return on investment of 15% after tax? Assume that the building will remain fully occupied during the five years. Assume also that your regular tax rate is 35% and the capital gains tax rate is 17.5%. The building has a CCA rate of 4% and will be sold at the end of the fifth year of ownership.
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:You are considering a luxury apartment building project that requires an investment
of $12,500,000. The building has 50 units. You expect the maintenance cost for
the apartment building to be $250,000 the first year and $300,000 the second year,
after which it will continue to increase by $50,000 in subsequent years. The cost
to hire a manager for the building is estimated to be $80,000 per year. After five
years of operation, the apartment building can be sold for $14,000,000. What is
the annual rent per apartment unit that will provide a return on investment of 15%
after tax? Assume that the building will remain fully occupied during the five
years. Assume also that your regular tax rate is 35% and the capital gains tax rate
is 17.5%. The building has a CCA rate of 4% and will be sold at the end of the
fifth year of ownership.
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