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A property could be sold today for $2 million. It has a loan balance of $1 million and, if sold, the investor would incur a capital gains tax of $250,000. The investor has determined that if it were sold today, she would earn an IRR of 15 percent on equity for the past five years. If not sold, the property is expected to produce after-tax cash flow of $50,000 over the next year. At the end of the year, the property value is expected to increase to $2.1 million, the loan balance will decrease to $900,000, and the amount of capital gains tax due is expected to increase to $255,000.
a. What is the marginal rate of return for keeping the property one additional year?
b. What advice would you give the investor?
Business-Mark-up policy. A clothing store sells a shirt costing $20 for $33 and a jacket costing $60 for $93. If the markup policy of the store is assumed to be linear, write an equation that expresses retail price R in terms of cost C (wholesale pri..
Susan has a 5-year “bunny bond” with a yield to maturity of 6.4% that will be automatically reinvested next month. She is considering liquidating the bond and reinvesting in a 10-year 3.5% coupon bond with a yield to maturity of 6.5%. Market rates ar..
The corporate bond of Blue Sky Industrial currently sells at $1,094.00. The bond has an annual coupon rate of 6% and a face value of $1,000. There are 12 years remaining to maturity. What is the current yield of the bond? The ABC bond has an annual c..
Apple Computer Incorporated is expected to grow at an exceptionally high rate over the next 3 years due to various new project launches. Computer paid a $2.12 dividend yesterday (D0=$2.12) and the stock is valued according to a required rate of retur..
Find the solution using the mathematical equivalence formulae (such as F=P(1+i)n ), substitute and solve (with your calculator – not with the tables) for the final answer. Solve by using the proper equivalence expressions (such as F = P(F/P, i, n)) a..
A stock had returns of 4 percent, 11 percent, 16 percent, -6 percent, and -2 percent for the past five years. Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?
Roxanne invested $520,000 in a new business 3 years ago. The business was expected to bring in $8,000 each month for the next 25 years (in excess of all costs). The annual cost of capital (or interest rate) for this type of business was 4% with month..
Locker Company has a debt-equity ratio of .65. Return on assets is 9.8 percent, and total equity is $850,000. What is the equity multiplier? Return on equity? Net income?
Seven years ago, you cut costs for employee health insurance by switching from open-ended insurance to health maintenance organizations (HMOs). At that time, you kept open-ended insurance for retirees because your employees told you that retirees wan..
London purchased a piece of real estate last year for $85,000. The real estate is now worth $103,500. If London needs to have a total return of 0.20 during the year, then what is the dollar amount of income that she needed to have to reach her object..
Calculate the price of a zero coupon bond that matures in 19 years if the market interest rate is 5.1 percent.
You have a 30-year mortgage with a simple annual interest rate of 8.5 percent. The monthly payment is $1,000. What percentage of your total payments over the first three years goes toward the repayment of principal?
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