Reference no: EM133065638

Question - An investor wants to purchase a property for $500,000 and has the cash in hand (no loan needed). The price of the property is expected to grow by 4% per year for the next 5 years. If the investor sells the property within the first 5 years of ownership, the investor will incur a selling expense of $10,000 due to agency and legal fees. After allowing for any agency / legal fees, any capital gain is taxed at the rate of 50% if the property is sold in the first 2 years of ownership but it is exempted if sold in the 3rd year of ownership (year 3) or later. For simplicity, assume that there has been no depreciation of the property during the period of investor ownership. How much will the investor earn in terms of capital gain when the investor sells the property at the end of year 3?