In-Class Practice Problems_M3_L6_L7

The Petersik family is considering purchasing a second home to use for short term rentals near the beach. If it purchases the house, they will place a down payment of $64,000 on the house. They estimate they will get an annual net rental profit of $8,500 after their mortgage and expenses are paid. After 18 years, they plan to pass the rental home along to their children, so assume the home has negligible salvage value. What would be the ERŘ if the Petersik family decides to invest in a rental home, assuming they keep the home for 18 years? Assume their MARR is 13%. Should the Petersik family invest in the rental home?

A family wants to purchase a house that costs $135,000. They plan to take out a $125,000 mortgage on the house and put $10,000 as a down payment. The bank informs them that with a 15-year mortgage their monthly payment would be $718.77 and with a 30-year mortgage their monthly payment would be $582.86. Determine the amount they would save on the cost of the house if they selected the 15-year mortgage rather than the 30-year mortgage. **** How much would they save if they selected the 15-year mortgage?

You own a home with a market value of $100,000. you bought the home for $150,000 ten years ago. your houses assessed value is $85,000. your property tax rate is 3.5%. how much would you save per year if you moved to an area with a 2.7% property tax?

After you purchase the house, you decide to do some remodeling in the kitchen.  You ask your parents if they would lend you money, but you insist on paying them interest.  The agreement is that they will lend you $6000.00 at a simple interest rate of 3% per year.  Once the interest amounts to $300, you agree to pay them back the $6000 plus the $300 interest.      Supoose that the $6000.00 was invested in a savings account that paid 2.5% interest compounded quarterly.      How much interest would be earned after 3 years? Be sure to show all of your work.

The Jeffersons are considering selling their current residence, buying a small home near Avery’s parents for $220,000 with a $100,000 30-year mortgage at 3.5%, and investing the net proceeds in their retirement accounts and education accounts. They assume they will incur 2% in transaction costs for the purchase and 6% for the sale. They have asked you the following: What will their monthly payment (principal and interest only) be on their new home if their new mortgage is the 3.5% on $100,000 for 30 years that they project? How much cash would they have available for other goals if they sell their old house for $330,000 and buy a new house for $220,000? Assume the mortgage they pay off is $56,000 and they pay the transaction costs for both homes from the proceeds of the sale of their current home. Also assume they take a $100,000 mortgage on the new home. If the Jeffersons purchase the new house and start a $100,000 30-year mortgage at 3.5% one year from today, what will be the…

The Jacksons are considering selling their current residence, buying a small home near Avery’s parents for $220,000 with a $100,000 30-year mortgage at 3.5%, and investing the net proceeds in their retirement accounts and education accounts. They assume they will incur 2% in transaction costs for the purchase and 6% for the sale. They have asked you the following: What will be their payment (principal and interest only) on their new home? How much will they be able to invest in their retirement accounts and education accounts after selling the old house and buying the new house? If the Jacksons purchase the new house one year from today, what will be the balance on their mortgage when they retire? What is the income tax consequence of their sale and purchase strategy?

Mr. Russ T. Steele sels his old vehicle for $5000 (you get more if you private sale!) and pays cash for a used (but newer vehicle) that costs $10.000. He also understands that he needs to allow for maintenance and operation costs of his vehicle. He estimates that these costs will be approximately $2000 a year and estimates that the costs will increase by $100 per year. He hopes to keep the vehicle for five years and then sell it for an estimated value of $2000. Mr. Steele has an MARR of 8%. The equivalent annual cost of the cash flow associated with his purchase is most nearly: $-1,850 $-3,100 $3,000 $3,800

You are trying to evaluate the feasibility of purchasing a quarter-acre plot (approximately 11,000 square feet) of agricultural land that has proper drainage and access to paved roads. You plan to rent the plot of land to receive after-tax receipts of US$2,500 per month. You are hoping to sell the land in the next ten years to receive after-tax proceeds of US$2.0 million to purchase a building containing at least four (two-bedroom) apartments. Assume the funds for purchasing the apartment will be drawn from your savings account which is currently earning 2% after taxes and that inflation rate is currently 5%.   1.Showing all calculations state if you should purchase the land for $1.6 million, justify your decision. What is the maximum price you should pay to acquire the single dwelling unit?

You are trying to evaluate the feasibility of purchasing a quarter-acre plot (approximately 11,000 square feet) of agricultural land that has proper drainage and access to paved roads. You plan to rent the plot of land to receive after-tax receipts of US$2,500 per month. You are hoping to sell the land in the next ten years to receive after-tax proceeds of US$2.0 million to purchase a building containing at least four (two-bedroom) apartments. Assume the funds for purchasing the apartment will be drawn from your savings account which is currently earning 2% after taxes and that inflation rate is currently 5%. a) Identify the cash flows, their timing and the required rate of return applicable to calculating the maximum value you should pay for the land. b) Showing all calculations state if you should purchase the land for US$1.6 million, justify your decision. What is the maximum price you should pay to acquire the single dwelling unit?

Rebecca is moving away from New York City for her new job, so she must buy a car rather than rely on public transit. The new car she is considering will cost $ 18,000 to buy, $ 1,500 per year to insure, and $ 500 per year for maintenance after the 3-year warranty expires. She would keep the car for 7 years when it will have a salvage value of $ 7,000. She has found a 2-year-old car that is the same model for $ 13,000. The 3-year warranty is transferrable, so the annual maintenance cost of $500 starts in year 2. Because the car is less valuable, insurance is $300 per year less than for the new car. After 5 years, the vehicle will be 7 years old and will have the same salvage value of $ 7,000.Rebecca is ignoring costs for fuel, oil, tires and registration, because the two vehicles will have the same costs. If her interest rate is 9%, how much cheaper is the used car (difference of EAC of two vehicles)

S Felice bought a duplex apartment at a cost of $210,000. Her mortgage payments on the property are $1.420 per month, $648 of which can be deducted from her income taxes. Her real estate taxes total $1,740 per year, and insurance costs $1,044 per year. She estimates that she will spend $1,092 each year per apartment for maintenance, replacing appliances, and other costs. The tenants will pay for all utilities. What monthly rent must she charge for each apartment to break even? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Ignore any tax effects. Rent per apartment to break even

Steven is thinking about buying a duplex. His monthly expenses will be $888 for the mortgage, $480 for taxes, and $420 for insurance period he also needs to pay a yearly association fee of $888.00. If he can rent out 1/2 of the unit for $1535 per month, how much will he make or lose per month? Loss of $60. Loss of $1120. Loss of $327.

Jino sold his house. In addition to cash, he took a mortgage on the house. The mortgage will be paid off by monthly payments of P12, 345 for 10 years. He decided to sell the mortgage to a local bank. The bank will buy the mortgage, but requires a 1% per month interest rate on their investment. How much will the bank pay for the mortgage?

Your parents buy a new house to downsize. They pay $250,000 and are planning on paying it off in a 15 year loan with equal annual payments of $19,167. What interest rate do you evaluate them to be paying on the loan?

Mr. Gallagher is considering replacing his five-year-old car with a new one. The new car will cost $30,000, taking into consideration the trade-in value of the old car. The new car will save Mr. Gallagher $5,000 per year in terms of gasoline, repairs, and maintenance. Mr. Gallagher plans to keep this new car for five years. At the end of five years, the car can be sold for $8,000. What is the internal rate of return on the new car? Select one: a. 1.40% b. 2.80% c. 5.00% d. 8.14% e. 9.43%

The Bainter family is moving to a new town and needs a place to live. The Bainters have narrowed their search to two houses they think will work for their family. The first house is a rental. The monthly rent is listed at $1,190, with the expectation that it will increase 1.7% each year. The second house is available for purchase. The sale price is listed at $195,000, and the Bainters have been approved for a loan that would allow them to purchase the home and pay for it over 30 years. Cost of Renting To estimate the cost of renting, the Bainters read through the rental agreement to determine for what types of costs they would need to budget. These costs include fees, renters' insurance, and utilities. The Bainters also research average prices for anything the landlord would not provide, such as renters' insurance. The Bainters realize they will have approximately the same costs for electricity and natural gas whether they rent or purchase, so they decide to exclude…

You are considering buying an old warehouse that you will convert into anoffice building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?(i) Remodeling cost at period 0 = $550,000;(ii) Annual rental income = $800,000;(iii)Annual upkeep costs (including taxes)= $80,000;(iiii) Estimated net property value (after taxes) at the end of 10 years =$2,225,000;(iiiii)The time value of your money (interest rate)= 8% per year.(a) $4,445,770(b) $5,033,400(c) $5,311,865(d) $5,812,665

Jasmine purchased a home in San Francisco near her best friend Sallie. The purchase price of the home was $ 2,000,000. However, Jasmine only financed 80% of the home value as she was able to secure the $400,000 down payment to help lower her monthly payments. What is her monthly payment if she financed at today's rate of 7.55% for a 15-year mortgage?

Hank purchased a $20,000 car two years ago using a 9 percent, five-year loan.  He has decided to sell the new car now, if he could get a price that would pay off the balance of his loan.  What's the minimum price Hank would need to receive for his car?

you live in the mobile home for four years, but your roommate also pays you $3,000 a year, paid to you at the beginning of each year.  The cost of the mobile home is $15,000, paid immediately.  At the end of four years, you can sell the mobile home for $9,000.  You have no maintenance on the home because you were such a smart manager. Using Future Value, what is the cost of your college housing, assuming the 8% interest rate?

John presently owns an office building, which is 30 years old, and is considering renovating it. Assume that if John does the renovation, he will be able to obtain a new loan that is equal to the balance of the existing loan plus 75% of the renovation costs. Assume a five-year holding period. Below is the information about the property and John's estimation if he does the renovation. CURRENT IF RENOVATED Purchase Price Building Value Land Value Loan-to-value ratio Renovation Cost Initial Increase in NOI (year 4) Annual Increase in NOI Resale Value after holding 5 years Selling Expenses New Loan: 1,000,000 400,000 800,000 20.00% 200,000 3.00% 1,523,000 3.00% of sale price 75.00% Interest 9.00% Term 30 years Interest Rate Term Payments per year 11.00% Payments per year Years since Purchased Current NOI (year 4) Projected Increase in NOI Resale Value Today Depreciable Life Ordinary income tax rate Price appreciation tax rate Depreciation recapture tax rate 12 30 years 90,000 12 2.00% per…

Patricia was receiving rental payments of $2, 000 at the beginning of every month from the tenants of her commercial property. What would be the value of her property in the market if she wants to sell it, assuming a market capitalization rate of 6.50% compounded annually?

solve the following problem: His father has asked him to advise him on remortgaging the house (remortgaging means taking out a new loan to pay for the house, depending on the fact that the value of the house has risen and they give him a loan for a greater amount). The house was purchased about 8 years ago at an initial value of $140,000 and a rate of 5.5% per year compounded monthly for twenty years. When performing a revaluation of the house the market value is $185,000. Therefore, a bank offers him an offer of 5.25% annual capitalized weekly to pay off the outstanding debt of the house and 6.5% annual capitalized daily to cover debts that his father has in credit cards and loans, the term would be for a few 15 more years (both loans). His father has a debt in cards in the order of $45,000 and you want to know how much they would lend you to cover the cards, since due to market conditions they only offer you a maximum amount of 80% of the market value of the house.

Davie bought his home several years ago with a 30-year fixed rate mortgage at an interest rate of 7.87%. He bought the house initially for $207,000 with a down payment of $36,000. Since he bought the house it has appreciated considerably, and is now worth $782,000. Davie is considering refinancing the house while taking out some of his home equity as cash. He is interested a 15-year fixed rate mortgage and the bank has offered him one at 3.61% interest. He will need $99,000 to pay off his initial mortgage, plus he wants to take out an additional $75,000 for himself. What will be the change in Davie's monthly mortgage payment if he chooses to refinance? Your answer can be positive or negative, and should be the New Mortgage Payment - Old Mortgage Payment. Round your answer to two decimal places.

Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR.   She and her husband Stan plan to buy a house in Garrison, MD and their budget is $500,000.  They have $100,000 for the down payment and McCormick will pay for closing costs.  They are considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%.  Calculate the monthly payment for each.  Property taxes and insurance will add $1,000 per  month to whichever mortgage they choose.  What should Kathy and Stan do?                     15yr               30yr PMT:  Monthly:

You own a home and are thinking of doing some home repairs. This year there is a tax credit of one-fifth the cost of materials for adding insulation and for replacing windows and external doors, up to a $4,000 tax credit maximum. a. You decide to add insulation to your attic which costs $2,800 in materials, and you install it yourself. What is the dollar amount of the tax credit? Tax credit $