Should Hersch buy the apartment complex

Assignment Help Microeconomics
Reference no: EM131821142

Question: MACRS and Low-Income Housing Aaron Hersch is a real estate developer who specializes in residential apartments. A complex of 20 run-down apartments has recently come on the market for $332,500. Hersch predicts that after remodeling, the 12 one-bedroom units will rent for $380 per month and the 8 two-bedroom apartments for $440. He budgets 15% of the rental fees for repairs and maintenance. It should be 30 years before the apartments need remodeling again, if the work is done well. Remodeling costs are $15,000 per apartment. Both purchase price and remodeling costs qualify as 27.5-year MACRS property. Assume that the MACRS schedule uses the straight-line method. It divides the total cost recovery amount by 27.5 and assigns a full year of depreciation to year 1 and a half year to year 28. Hersch does not believe he will keep the apartment complex for its entire 30-year life. Most likely he will sell it just after the end of the tenth year. His predicted sales price is $980,000. Hersch's required rate of return is 10%, and his tax rate is 38%. Should Hersch buy the apartment complex? What is the after-tax NPV? Ignore tax complications, such as capital gains.

Reference no: EM131821142

Questions Cloud

Determining the purchase of equipment : Purchase of Equipment, MACRS The Scranton Clinic, a for-profi t medical facility, is planning to spend $35,000 for modernized MRI equipment.
Analysis of food crushing sounds during mastication : Construct a 95% confidence interval for the difference in mean peak loudness between open-mouth and closed-mouth chewing of potato chips.
Human model than for infants : Are very young infants more likely to imitate actions that are modeled by a person or simulated by an object? This question was the basis of a research study
Sales commissions as an incentive for the sales staff : The marketing manager would like to introduce sales commissions as an incentive for the sales staff
Should Hersch buy the apartment complex : MACRS and Low-Income Housing Aaron Hersch is a real estate developer who specializes in residential apartments. A complex of 20 run-down apartments.
Discuss the company from the companys perspective : Explain the financial benefit each contract is meant to bring to the company from the company's perspective
Should denny have disclosed his financial interest : Should Denny have disclosed his financial interest in the corporation as soon as he was assigned the case
Appropriate test procedure : Using an appropriate test procedure, carry out a test of the hypothesis given in Part (b). Use a = .05 for this test.
Compute diluted earnings per share : Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted on July 1, 2017

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd