Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) You are thinking about the option to buy or rent the single residential property. You can rent it for $2000 per month and owner would be accountable for maintenance, property insurance, and property taxes. On the other hand, you can buy this property for $200,000 and finance it with the 80% mortgage loan at 6% interest which will completely amortize over 30-year period. Loan can be prepaid at any time without punishment.

You have done research in market area and found that properties have historically appreciated at annual rate of 3% per year, and rents on related properties have also improved at 3% annually; maintenance and insurance are presently $1,500.00 each per year and they have been rising at a rate of 3% per year; you are in 26% marginal tax rate and plan to dwell in the property as your principal residence for at least 4 years; capital gains exclusion would apply when you sell property; selling costs would be 7% in year of sale; and property taxes have usually been about 2% of property value each year.

Based on the information given you should decide:

a) In order to earn 10% IRR after taxes on equity, must you buy property or rent it for a 4-year period of ownership?

b) What if your expected period of ownership was to alter to 5 years. Would owning or renting be better if you wanted to earn a 10% IRR after taxes?

c) Approximately what level of rents would make you uninterested between owning and renting for a 4-year period? Suppose a 4.5% after-tax IRR would be minimum you would need to earn capital invested in the home.

Requirements
Min Pages: 3

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914584

Have any Question? 


Related Questions in Basic Finance

Problem tafkap industries has 5 million shares of stock

Problem: TAFKAP Industries has 5 million shares of stock outstanding selling at $13 per share, and an issue of $30 million in 8.5 percent annual coupon bonds with a maturity of 10 years, selling at 107 percent of par. As ...

Case - atlas metals company capital budgetingquestions 1

Case - Atlas Metals Company Capital Budgeting QUESTIONS 1. Explain why Jim Brakeman's method of monitoring project managers' ROIs may have con-tributed to an increase in the company's ROI. Then explain why this procedure ...

A firm is expected to pay a dividend of 355 next year and

A firm is expected to pay a dividend of $3.55 next year and $3.85 the following year. Financial analysts believe the stock will be at their price target of $120 in two years. Compute the value of this stock with a requir ...

You are a foreign exchange analyst at cbaprepare a brief

You are a foreign exchange analyst at CBA. Prepare a brief outlining what you believe will be the forecast for the AUD/USD exchange rate in 2017. Draw Supply Demand Graph how does it effect. Your home country is Australi ...

Questionsa list and briefly describe the three general

Questions A. List and briefly describe the three general areas of responsibility for a chief financial officer (CFO) of a selected non-financial company which is listed on Australian Stock Exchange (ASX). Explain how tho ...

Describe the meaning of a state of nature and explain how

Describe the meaning of a "state of nature" and explain how this concept is used to provide expected measures of return and risk.

Questionhypothesis testing scenariocaptionnbspas you

Question: Hypothesis Testing Scenario Caption:  As you prepared your memo about the new "Tire Kit" line, you discovered that the sample size that you were provided was insufficiently small. Using a larger sample of 200 c ...

In 2006 ben bernanke said the goals of strong output growth

In 2006, Ben Bernanke said the goals of strong output growth and low inflation "are almost always consistent with each other." Alan Greenspan once called the trade-off between output and inflation "ephemeral." a. Are the ...

The past five monthly returns for pgampe are -347 percent

The past five monthly returns for PG&E are -3.47 percent, 4.63 percent, 4.07 percent, 6.92 percent, and 3.88 percent. What is the average monthly return? (Round your answer to 3 decimal places.)

In the united states voters who are neither democrat nor

In the United States, voters who are neither Democrat nor Republican are called independent. It is believed that 10% of all voters are independent. A survey asked 25 people to identify themselves as Democrat, Republican, ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate