Reference no: EM131810842

When there is little or no inflation, a homeowner can expect to rent an unfurnished home for 12% of its market value. About 1 /8 of the rental income is paid out for property taxes, insurance, and other operating expenses. Thus the net annual income to the owner is 10.5% of the market value. Since prices are relatively stable, the future selling price of the property often equals the original price paid by the owner. For a $150,000 property (where the land is estimated at $46,500 of the $150,000), compute the after-tax rate of return, assuming the selling price 59 months later (in December) equals the original purchase price. Use modified accelerated cost recovery system depreciation beginning January 1. Also, assume a 35% income tax rate.