What after-tax rate of return can he expect to receive

Reference no: EM132168109

Question: Albert Chan decided to buy an old duplex as an investment. After looking for several months, he found a desirable duplex that could be bought for $300,000 cash. He decided that he would rent both sides of the duplex, and determined that the total expected income would be $1500 per month. The total annual expenses for property taxes, repairs, gardening, and so forth are estimated at $750 per year. For tax purposes, Al plans to depreciate the building by the sum-of-years'-digits method, assuming that the building has a 20-year remaining life and no salvage value. Of the total $300,000 cost of the property, $250,000 represents the value of the building and $50,000 is the value of the lot. Assume that Al is in the 38% incremental income tax bracket (combined state and federal taxes) throughout the 20 years.

In this analysis Al estimates that the income and expenses will remain constant at their present levels. If he buys and holds the property for 20 years, what after-tax rate of return can he expect to receive on his investment, using the following assumptions?

A. Al believes the building and the lot can be sold at the end of 20 years for the $50,000 estimated value of the lot.

B. A more optimistic estimate of the future value of the building and the lot is that the property can be sold for $380,000 at the end of 20 years.

Reference no: EM132168109

Questions Cloud

Did law enforcement violate mayos constitutional rights : Did law enforcement violate Mayo's constitutional rights? If yes, explain how. If not, explain why.

Compute steve after-tax rate of return : The Lynch Bull investment company suggests that Steven Comstock, a wealthy New York City investor (his incremental income tax rate is 35%).

Discuss the exceptions to the exclusionary rule : Discuss the difference in a stop and frisk and an arrest. What are the requirements for an officer to conduct a "stop and frisk"?

Identify and discuss at least three prima facie duties : Illustrate two to three (2-3) ways in which you would address self-interest and pursuit of pleasure to prevent police corruption.

What after-tax rate of return can he expect to receive : In this analysis Al estimates that the income and expenses will remain constant at their present levels. If he buys and holds the property for 20 years.

Will obtain the desired after-tax rate of return : Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce.

Average delay in the onset of dementia : Being bilingual appears to slow the onset of dementia by an average of 4.5 years with a standard deviation of 2 years. In a random sample of 75 bilingual people

Explain the benefits for patients nearing end-of-life : IFSM 304:Explain the benefits for patients nearing end-of-life that came from the right-to-die movement.

What is the probability a simple random sample : What is the probability a simple random sample (SRS) of 25 cats will kill an average of between 9 and 12 birds a year?

User Account

All Pages