When there is little or no inflation, a homeowner can expect to rent an unfurnished home for 12% of its market value. About of the rental income is paid out for property taxes, insurance, and other operating expenses. Thus the net annual income to the owner is 10.5% of the market value. Since prices are relatively stable, the future selling price of the property often equals the original price paid by the owner. For a $150,000 property (where the land is estimated at $46,500 of the $150,000), compute the after-tax rate of return, assuming the selling price 59 months later (in December) equals the original purchase price. Use modified accelerated cost recovery system depreciation beginning January 1. Also, assume a 35% income tax rate.As inflation has increased throughout the world, the rental income of homes has decreased and a net annual rental income of 8% of the market value is common. On the other hand, the market value of homes tends to rise about 2% per year more than the inflation rate. As a result, both annual net rental income and the resale value of the property rise faster than the inflation rate. Consider the following situation.
When there is little or no inflation, a homeowner can expect to rent an unfurnished home for 12% of its market value. About of the rental income is paid out for property taxes, insurance, and other operating expenses. Thus the net annual income to the owner is 10.5% of the market value. Since prices are relatively stable, the future selling price of the property often equals the original price paid by the owner. For a $150,000 property (where the land is estimated at $46,500 of the $150,000), compute the after-tax
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