Find the price of apartment that royal birkdale should pay

Assignment Help Financial Management

Reference no: EM13941141

Royal Birkdale Company is interested in buying an apartment and renting it out for $12,000 a year, collecting the rent in advance each year. Royal Birkdale will depreciate the apartment over 20 years, but sell it after 5 years at a price, which is 20% more than its purchase price. The maintenance expenses and real estate taxes, paid at the end of each year, are $2000 annually. The after tax cost of capital for Royal Birkdale is 10%, and its income tax rate is 25%. Find the price of the apartment that Royal Birkdale should pay so that it can make $10,000 in current dollars from this project.

Reference no: EM13941141

Questions Cloud

What is you expected rate of return on this stock : You recently purchased a stock the is expected to earn 30 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal econo..

Other metrics relative to standard benchmark : Most sources report alphas and other metrics relative to a standard benchmark, such as the S&P 500. When might this method be an inappropriate comparison?

Ignore depreciation and capital gains-is worthwhile projet : Judy Garland is planning to open a stall at the local mall, paying $2500 rent, in advance each month. She will buy $25,000 in costume jewelry as the initial inventory, and buy the display cases for $4000. Assume that all the cash flows occur at the e..

Possibility of buying several coin-operated vending machines : Leila Liverpool is looking into the possibility of buying several coin-operated vending machines and placing them in the local hospitals. Each machine costs $3200, which she will depreciate on a straight-line basis over 10 years. Assume that the inco..

Find the price of apartment that royal birkdale should pay : Royal Birkdale Company is interested in buying an apartment and renting it out for $12,000 a year, collecting the rent in advance each year. Royal Birkdale will depreciate the apartment over 20 years, but sell it after 5 years at a price, which is 20..

All expenses are fully deductible and all gains are taxable : Kathy St Andrews is planning to buy a house for $140,000 by borrowing money at the rate of 9%. She expects to rent the house for 6 years, collecting $11,000 annual rent in advance each year. She thinks that she can sell the house for $180,000 after 6..

Cost of levered equity will be less cost of unlevered equity : In perfect capital markets, how does leverage affect the cost of equity? a. In perfect capital markets, levered equity's cost increases with the debt-equity ratio. b. In perfect capital markets, leverage increases the cost of levered equity by the co..

Should turnberry buy or lease these vans : Turnberry Trucking Service would like to acquire 400 vans for its business. It can buy each van for $35,000, depreciate it completely over 7 years, and then sell it for $10,000. The tax rate of Turnberry is 35%, and its cost of debt is 12%. Should Tu..

Maximum price that royal troon should pay for this computer : Royal Troon Inc is planning to lease a computer for $6,500 per annum, payable in advance, for a period of 4 years. The lease will cover maintenance expenses. If Royal Troon buys the computer, it will depreciate it fully in 4 years. What is the maximu..

User Account

All Pages