A newly-built business property, containing a space for a store and two offices, can be purchased for $1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least $458,460 from the property, and the annual out-of-pocket expenditure will not exceed $60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than $700,000. Annual taxes and insurance will total 2.5% of the first cost. Assume he has sufficient capital to purchase the property, and that the minimum attractive return (MARR) he is obtaining from his capital is 20%. What is the Rate of Return of the Investment (in %)?
A newly-built business property, containing a space for a store and two offices, can be purchased for $1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least $458,460 from the property, and the annual out-of-pocket expenditure will not exceed $60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than $700,000. Annual taxes and insurance will total 2.5% of the first cost. Assume he has sufficient capital to purchase the property, and that the minimum attractive return (MARR) he is obtaining from his capital is 20%. What is the Rate of Return of the Investment (in %)?
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
Problem 1R
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A newly-built business property, containing a space for a store and two offices, can be purchased for $1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least $458,460 from the property, and the annual out-of-pocket expenditure will not exceed $60,000. He believes that he should be able to dispose of the property at the end of 10 years at not less than $700,000. Annual taxes and insurance will total 2.5% of the first cost. Assume he has sufficient capital to purchase the property, and that the minimum attractive return (MARR) he is obtaining from his capital is 20%.
What is the
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