John paisley is planning to buy a house

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Q. John Paisley is planning to buy a house for $100,000 by borrowing money at the rate of 9%. He expects to rent the house for 5 years, collecting $9,000 annual rent in advance each year. He thinks that he can sell the house for $120,000 after five years. Paisley has income tax rate of 30%. He will have to pay $3,000 annually in maintenance also real estate taxes also he will depreciate the house on a straight-line basis for 20 years. The risk-adjusted discount rate in this project is 10%. If all the expenses are fully deductible also all gains are taxable, should he undertake this project?

Reference no: EM1320458

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