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

1 how do you explain why the underwriting spread on ipos

1. How do you explain why the underwriting spread on IPOs averages about 7 percent of the offering price, whereas the underwriting spread on a seasoned offering of common stock averages less than 5 percent? 2. Discuss th ...

We are going through financial crisis seven years have

We are going through financial crisis. Seven years have passed and we are still in recovery stage. Based on the analysis in the class, can you suggest and elaborate an alternative way to deal with the financial crisis?

Consider a lottery that pays to the winner an annuity of

Consider a lottery that pays to the winner an annuity of $800 that begins at the end of the first year and continues at the end of each consecutive year for a total of 18 years with one exception. Because of high adminis ...

1 what is the financial planning process what is a

1. What is the financial planning process? What is a strategic plan? Describe the roles that financial managers play with regard to strategic planning. 2. Briefly describe the following popular growth targets: (1) accoun ...

A company you are researching has common stock with a beta

A company you are researching has common stock with a beta of 1.20. Currently, Treasury bills yield 4%, and the market portfolio offers an expected return of 13%. The company finances 20% of its assets with debt that has ...

Percy motors has a target capital structure of 40 of debt

Percy motors has a target capital structure of 40% of debt and 60% of common equity, with no preferred stock. The pre tax cost of debt is 9% and it's corporate tax rate is 40%. Percy CFO estimate that the companys WACC A ...

Use wwwmsncomto find financial statements for any for

Use www.msn.comto find financial statements for any "for profit" company in the computer hardware industry. enter the company symbol go to menu on left side of screen go to financial results go to financial ratios Comple ...

Ne at least three ways to reduce the possibility of scc

Name at least three ways to reduce the possibility of SCC ? Which is better, a relatively small anode or a large one and why? Is coating a fastener always helpful in fighting corrosion resistance, even if there are minor ...

1 what is the federal agency underwriting function and what

1. What is the federal agency underwriting function and what does it do for the mortgage market, and ultimately for the borrower? 2. Compare and contrast the two categories of bonds and how they differ from mortgage- bac ...

Describe the fundamental difference between a

Describe the fundamental difference between a within-subjects design and a between-subjects design for an experiment comparing three treatment conditions.

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro