Robert Cooper is considering purchasing apiece of business rental property containing storesand offices at a cost of $250,000. Cooper estimatesthat annual disbursements (other than income taxes)will be about $12,000. The property is expected toappreciate at the annual rate of 5%. Cooper expectsto retain the property for 20 years once it is acquired.Then it will be depreciated as a 39-year real-propertyclass (MACRS), assuming that the property will beplaced in service on January 1st. Cooper’s marginaltax rate is 30% and his MARR is 15%. What wouldbe the minimum annual total of rental receipts thatwould make the investment break even?
Robert Cooper is considering purchasing apiece of business rental property containing storesand offices at a cost of $250,000. Cooper estimatesthat annual disbursements (other than income taxes)will be about $12,000. The property is expected toappreciate at the annual rate of 5%. Cooper expectsto retain the property for 20 years once it is acquired.Then it will be depreciated as a 39-year real-propertyclass (MACRS), assuming that the property will beplaced in service on January 1st. Cooper’s marginaltax rate is 30% and his MARR is 15%. What wouldbe the minimum annual total of rental receipts thatwould make the investment break even?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
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Question
Robert Cooper is considering purchasing a
piece of business rental property containing stores
and offices at a cost of $250,000. Cooper estimates
that annual disbursements (other than income taxes)
will be about $12,000. The property is expected to
appreciate at the annual rate of 5%. Cooper expects
to retain the property for 20 years once it is acquired.
Then it will be
class (MACRS), assuming that the property will be
placed in service on January 1st. Cooper’s marginal
tax rate is 30% and his MARR is 15%. What would
be the minimum annual total of rental receipts that
would make the investment break even?
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