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28 Sep 2019
You have a contractor make improvements to a business rental for a fixxed price of $64,000. With this improvement you can obtain additional rent payments of $1,200 per month. You estimate the improvements will cause extra monthly expenses of $50 for property taxes, $45 for insurance, and $100 and $200
per month, respectively, in utility and maintenance costs. The life of this project is 15 years at which point the salvage value to the improvement is exactly $16,000. The improvements are depreciated on straight depreciation schedule (15 years). There is no income tax in Wyoming, so the only tax is Federal. Assume a marginal Federal tax rate of 33%.
(a) Assume that you pay cash of $64,000 for the project. Use
an MARR of 15% and calculate a net present value for this
cash stream after taxes.
(b) Assume that you borrow $50,000 (of the needed $64,000)
for the project at a nominal interest rate of 9%. The inter-
est on this loan is tax deductable. Use an MARR of 15%
and calculate a net present value for this cash stream after
taxes.
(Hint: The interest paid is not the same each year;
so part b) will probably require Excel to make the calcula-
tion easy. You can do it by hand, but it will take a few
calculations. The principal payments on the loan are not
tax deductable.)
You have a contractor make improvements to a business rental for a fixxed price of $64,000. With this improvement you can obtain additional rent payments of $1,200 per month. You estimate the improvements will cause extra monthly expenses of $50 for property taxes, $45 for insurance, and $100 and $200
per month, respectively, in utility and maintenance costs. The life of this project is 15 years at which point the salvage value to the improvement is exactly $16,000. The improvements are depreciated on straight depreciation schedule (15 years). There is no income tax in Wyoming, so the only tax is Federal. Assume a marginal Federal tax rate of 33%.
(a) Assume that you pay cash of $64,000 for the project. Use
an MARR of 15% and calculate a net present value for this
cash stream after taxes.
(b) Assume that you borrow $50,000 (of the needed $64,000)
for the project at a nominal interest rate of 9%. The inter-
est on this loan is tax deductable. Use an MARR of 15%
and calculate a net present value for this cash stream after
taxes.
(Hint: The interest paid is not the same each year;
so part b) will probably require Excel to make the calcula-
tion easy. You can do it by hand, but it will take a few
calculations. The principal payments on the loan are not
tax deductable.)
per month, respectively, in utility and maintenance costs. The life of this project is 15 years at which point the salvage value to the improvement is exactly $16,000. The improvements are depreciated on straight depreciation schedule (15 years). There is no income tax in Wyoming, so the only tax is Federal. Assume a marginal Federal tax rate of 33%.
(a) Assume that you pay cash of $64,000 for the project. Use
an MARR of 15% and calculate a net present value for this
cash stream after taxes.
(b) Assume that you borrow $50,000 (of the needed $64,000)
for the project at a nominal interest rate of 9%. The inter-
est on this loan is tax deductable. Use an MARR of 15%
and calculate a net present value for this cash stream after
taxes.
(Hint: The interest paid is not the same each year;
so part b) will probably require Excel to make the calcula-
tion easy. You can do it by hand, but it will take a few
calculations. The principal payments on the loan are not
tax deductable.)
Joshua StredderLv10
28 Sep 2019
