Raul martinas professor of languages at eastern university

Reference no: EM13597674

Raul Martinas, professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $541,000-$53,000 for the land and $488,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, so Professor Martinas is unsure whether he should keep it or sell it. Assume that Professor Martinas requires a 15% rate of return. His alternatives are:

Alternative 1: Keep the property. Professor Martinas' accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses:

Rental receipts $133,000
Less building expenses:
Utilities $24,900
Depreciation of building 15,100
Property taxes and insurance 17,000
Repairs and maintenance 8,100
Custodial help and supplies 38,800
Total Building Expenses 103,900
Net operating income 29,100

Professor Martinas makes a $12,200 mortgage payment each year on the property. The mortgage will be paid off in 8 more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $110,500 for the building which he still thinks is an appropriate figure. He feels sure that the building can be rented for another 15 years. He also feels sure that 15 years from now the land will be worth three times what he paid for it.

Alternative 2: Sell the property. A realty company has offered to purchase the property by paying $177,000 immediately and $26,300 per year for the next 15 years. Control of the property would go to the realty company immediately. To sell the property, Professor Martinas would need to pay the mortgage off, which could be done by making a lump-sum payment of $91,600.

To determine the appropriate discount factor(s) using tables, click here to view Exhibit 12B-1 and Exhibit 12B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.

Required:
(a)Calculate the present value of cash flows if he keeps the property.

(b)Calculate the present value of cash flows if he sells the property.

Reference no: EM13597674

Questions Cloud

On january 1 2010 lindsey company issued 10-year 3100000 : on january 1 2010 lindsey company issued 10-year 3100000 face value 6 bonds at par. each 1000 bond is convertible into

Shanken corp issued a 30-year 12 percent semiannual bond 8 : shanken corp. issued a 30-year 12 percent semiannual bond 8 years ago. the bond currently sells for 106 percent of its

In 200 words or more please review a public companys : in 200 words or more please review a public companys financial statements. comment on each account that you find in the

Equipment was purchased for 17000 on january 1 2009 freight : equipment was purchased for 17000 on january 1 2009. freight charges amounted to 700 and there was a cost of 2000 for

Raul martinas professor of languages at eastern university : raul martinas professor of languages at eastern university owns a small office building adjacent to the university

In 2010 wilkinson company had net credit sales of 1125000 : in 2010 wilkinson company had net credit sales of 1125000. on january 1 2010 allowance for doubtful accounts had a

Net credit sales for the month are 600000 the accounts : net credit sales for the month are 600000. the accounts receivable balance is 120000. the allowance is calculated as 5

The adjusted trial balance data from the cameron white : the adjusted trial balance data from the cameron white company spreadsheet for the year end december 31. the balance of

Ramos company has a 90-day note that carries an annual : ramos company has a 90-day note that carries an annual interest rate of 8. if the amount of the total interest on the

User Account

All Pages