Before-tax rate of return

Assignment Help Business Economics

Reference no: EM131810831

Sam bought a house for $150,000 with some creative financing. The bank, which agreed to lend Sam $120,000 for 6 years at 15% interest, took a first mortgage on the house. The Joneses, who sold Sam the house, agreed to lend Sam the remaining $30,000 for 6 years at 12% interest. They received a second mortgage on the house. Thus Sam became the owner without putting up any cash. Sam pays $1500 a month on the first mortgage and $300 a month on the second mortgage. In both cases these are "interest only" loans, and the principal is due at the end of the loan. Sam rented the house to Justin and Shannon, but afterpayingthetaxes,insurance,and so on,hehad only $800 left, so he was forced to put up $1000 a month to make the monthly mortgage payments. At the end of 3 years, Sam sold the house for $205,000. After paying off the two loans and the real estate broker, he had $40,365 left. After taking an 8% inflation rate into account, what was his before-tax rate of return?

Reference no: EM131810831

Questions Cloud

Find the equivalent annual cost after taxes : Assume the real MARR is 8%, and the inflation rate is 5%. Find the equivalent annual cost after taxes. Does inflation increase or decrease the annual cost?

Annual loss of population and property values : Ruralville is suffering a 1% annual loss of population and property values. Even so, Ruralville must maintain its tax collections at a constant value

Record the issuance of bonds and warrants : Mickey Corp. issued 3,000 $1000 bonds at 105. Use the proportionate method to record the issuance of bonds and warrants

Compare the expected pressure drop in the line : An 8 GPM flow of petroleum oil is being delivered through a 0.5- in. hose to a hydraulic motor. The hose length is 16 ft, and no elbows or other fittings.

Before-tax rate of return : After taking an 8% inflation rate into account, what was his before-tax rate of return?

What is the current break-even point in units : The manager of Calypso, Inc. is considering raising its current price of $35 per unit by 10%. What is the current break-even point in units

Purchasing power of dollars : Express the answer to part (a) in terms of the purchasing power of dollars from 50 years ago.

Reviewed journal articles from the csu online library : Reviewed journal articles from the CSU online library - on the importance of ethical decision making for the environment and the development of a safety.

Calculate the present worth of the gifts : If general price inflation, as well as tuition price inflation, is expected to average 5% per year for those 8 years, calculate the present worth of the gifts.

User Account

All Pages