Property taxes-fire insurance and all other annual costs

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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. 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 of Mr. Jones has a 25% tax rate on ordinary income and 15% on capital gains? He use a 10% after-tax MARR.

Reference no: EM131332155

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