Reference no: EM131810355

Mr. Sam K. Jones, a successful businessman, is considering erecting a small building on a commercial lot. A local furniture company is willing to lease the building for $9000 per year, paid at the end of each year. It is a net lease, which means the furniture company must also pay the property taxes, fire insurance, and all other annual costs. The furniture company will require a 5-year lease with an option to buy the building and land on which it stands for $125,000 after 5 years. Mr. Jones could have the building constructed for $82,000. He could sell the commercial lot now for $30,000, the same price he paid for it. Mr. Jones files a joint return and has an annual taxable income from other sources of $63,900. He would depreciate the commercial building by modified accelerated cost recovery system (MACRS) depreciation. Mr. Jones believes that at the end of the 5-year lease he could easily sell the property for $125,000. What is the after-tax present worth of this 5-year venture if Mr. Jones uses a 10% after-tax MARR?