You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $296,000. If you buy the property, you believe that you will have to spend (1) $12,100 on various acquisition-related expenses and (2) an average of $3,600 per month during the next 12 months for repair costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $276,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research Indicates that after you repair the property, it may sell for about $350,000 at the end of one year. Furthermore, you will probably have to pay about $4,600 in fees and selling expenses in order to sell the property at that time. Required: a. If you wanted to earn a 20 percent return compounded monthly, do you believe that this would be a good investment? b. What would you need to sell the property for in order to achieve the 20 percent return? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Answer is complete but not entirely correct. Is this a good investment? b. Sale price No $ 302,526

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
icon
Related questions
Question

Heer 

Don't upload any image please

You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who
defaulted on his loan. First Capital is offering the property for $296,000. If you buy the property, you believe that you will have to
spend (1) $12,100 on various acquisition-related expenses and (2) an average of $3,600 per month during the next 12 months for repair
costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is
willing to provide $276,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research
Indicates that after you repair the property, it may sell for about $350,000 at the end of one year. Furthermore, you will probably have
to pay about $4,600 in fees and selling expenses in order to sell the property at that time.
Required:
a. If you wanted to earn a 20 percent return compounded monthly, do you believe that this would be a good investment?
b. What would you need to sell the property for in order to achieve the 20 percent return? (Do not round intermediate calculations.
Round your final answer to nearest whole dollar amount.)
Answer is complete but not entirely correct.
a. Is this a good investment?
b. Sale price
No
$ 302,526
Transcribed Image Text:You have an opportunity to acquire a property from First Capital Bank. The bank recently obtained the property from a borrower who defaulted on his loan. First Capital is offering the property for $296,000. If you buy the property, you believe that you will have to spend (1) $12,100 on various acquisition-related expenses and (2) an average of $3,600 per month during the next 12 months for repair costs, and so on, in order to prepare it for sale. Because First Capital Bank would like to sell the property as soon as possible, it is willing to provide $276,000 in financing at 4.25 percent interest for 12 months payable monthly (interest only). Your market research Indicates that after you repair the property, it may sell for about $350,000 at the end of one year. Furthermore, you will probably have to pay about $4,600 in fees and selling expenses in order to sell the property at that time. Required: a. If you wanted to earn a 20 percent return compounded monthly, do you believe that this would be a good investment? b. What would you need to sell the property for in order to achieve the 20 percent return? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) Answer is complete but not entirely correct. a. Is this a good investment? b. Sale price No $ 302,526
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
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…
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