Assume that Martinas requires a 12% rate of return Compute net present value in favor of for against keeping the property using the total- cost approach (Round discount factor(s) to 3 decimal places and other intermediate calculations to the nearest dollar amount.) Net present value
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- Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $559,000—that is, $52,000 for the land and $507,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows: a. Keep the property. Martinas’s accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Martinas makes a $12,675 mortgage payment each year on the property. The mortgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $76,050 for the building, which he still thinks is an appropriate figure.…Glen Campbell owns a small office building adjacent to an airport. He acquired the property 10 years ago at a total cost of $608,000—that is, $70,000 for the land and $538,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Campbell is unsure whether he should keep it or sell it. His alternatives are as follows: a. Keep the property. Campbell's accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Campbell makes a $13,450 mortgage payment each year on the property. The mortgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $80,700 for the building, which he still thinks is an appropriate figure. He feels sure that the building can be rented for another…Steeley Associates, Inc., a property development firm, purchased an old house near the townsquare in Concord Falls, where State University is located. The old house was built in the mid1800s, and Steeley Associates restored it. For almost a decade, Steeley has leased it to theuniversity for academic office space. The house is located on a wide lawn and has become atown landmark.However, in 2008, the lease with the university expired, and Steeley Associates decided to buildhigh-density student apartments on the site, using all the open space. The community wasoutraged and objected to the town council. The legal counsel for the town spoke with arepresentative from Steeley and hinted that if Steeley requested a permit, the town would probablyreject it. Steeley had reviewed the town building code and felt confident that its plan was withinthe guidelines, but that did not necessarily mean that it could win a lawsuit against the town toforce it to grant a permit.The principals at Steeley…
- Steeley Associates, Inc., a property development firm, purchased an old house near the townsquare in Concord Falls, where State University is located. The old house was built in the mid1800s, and Steeley Associates restored it. For almost a decade, Steeley has leased it to theuniversity for academic office space. The house is located on a wide lawn and has become atown landmark.However, in 2008, the lease with the university expired, and Steeley Associates decided to buildhigh-density student apartments on the site, using all the open space. The community wasoutraged and objected to the town council. The legal counsel for the town spoke with arepresentative from Steeley and hinted that if Steeley requested a permit, the town would probablyreject it. Steeley had reviewed the town building code and felt confident that its plan was withinthe guidelines, but that did not necessarily mean that it could win a lawsuit against the town toforce it to grant a permit.The principals at Steeley…Wooden Box, Corp. bought land on the outskirts of Portland, Oregon for its factory in 1912 for $10,000. The company built the factory for $100,000 and the building was fully depreciated, torn down and replaced for $350,000 about fifteen years ago, and is now right in the heart of a rehabilitation zone in the city (the city grew around it). Recently an investor approached Wooden Box, Corp. and offered to buy the factory and land for $4,000,000 because it could be turned into loft apartments. The investor presented a bone fide written offer with earnest money, but the board of the Wooden Box, Corp. refused the offer. Assuming the building was being depreciated straight-line over 30 years with a $50,000 salvage value, accumulated depreciation would now be about $150,000. What is the definition of fair market value, and how does it apply to this situation? How should the building and land be shown on the balance sheet? What principle are you following in your recommendation? Do you think…Richard Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property two years ago for $800,000 and financed it with a 20-year, 75 percent loan at 4.5 percent interest (monthly payments). Of the $800,000, the appraiser indicated that the land was worth $200,000 and the building $600,000. Rambo has been using straight-line depreciation over 39 years (1/39 per year for simplicity). At the present time Marine Tower is producing $52,000 in NOI, and the NOI and property value are expected to increase 2 percent per year. The current market value of the property is $820,000. Rambo estimates that if the Marine Tower office building is renovated at a cost of $200,000, NOI will be about 20 percent higher next year ($62,400 vs. $52,000) due to higher rents and lower expenses. He also expects that with the renovation the NOI will increase 3 percent per year instead of 2 percent. Furthermore, Rambo believes that after five…
- Richard Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property two years ago for $800,000 and financed it with a 20-year, 75 percent loan at 4.5 percent interest (monthly payments). Of the $800,000, the appraiser indicated that the land was worth $200,000 and the building $600,000. Rambo has been using straight-line depreciation over 39 years (1/39 per year for simplicity). At the present time Marine Tower is producing $52,000 in NOI, and the NOI and property value are expected to increase 2 percent per year. The current market value of the property is $820,000. Rambo estimates that if the Marine Tower office building is renovated at a cost of $200,000, NOI will be about 20 percent higher next year ($62,400 vs. $52,000) due to higher rents and lower expenses. He also expects that with the renovation the NOI will increase 3 percent per year instead of 2 percent. Furthermore, Rambo believes that after five…Lonnie Carson purchased Royal Oaks Apartments two years ago. An opportunity has arisen for Carson to purchase a larger apartment project called Royal Palms, but Carson believes that he would have to sell Royal Oaks to have sufficient equity capital to purchase Royal Palms. Carsonpaid $2 million for Royal Oaks two years ago, with the land representing approximately $200,000 of that value. A recent appraisal indicated that the property is worth about $2.2 million today. When purchased two years ago, Carson financed the property with a 70 percent mortgage at 10 percent interest for 25 years (monthly payments). The property is being depreciated over 27.5 years (1/27.5 per year for simplicity). Effective gross income during the next year is expected to be $350,000, and operating expenses are projected to be 40 percent of effective gross income. Carson expects effective gross income to increase by 3 percent per year. The propertyvalue is expected to increase at the same 3 percent annual…Claude purchased raw land three years ago for $1,000,000 to develop into lots and sell to individuals planning to build their dream homes. Claude intended to treat this property as inventory, like his other development properties. Before completing the development of the property, however, he decided to contribute it to South Peak Investors LLC when it was worth $3,000,000, in exchange for a 10 percent capital and profits interest. South Peak’s strategy is to hold land for investment purposes only and then sell it later at a gain. a. If South Peak sells the property for $3,110,000 four years after Claude’s contribution, how much gain or loss is recognized, and what is its character? [Hint: See §724.] [capital gain/loss or Ordinary gain/loss] b. If South Peak sells the property for $3,110,000 five and one-half years after Claude’s contribution, how much gain or loss is recognized, and what is its character?
- Mr. Smith acquired a property consisting of one acre of land and a two-story building five years ago for $100,000. He also obtained an $80,000 mortgage loan from ACE Bank to provide financing to complete the purchase. This year, Mr. Smith constructed another building on the property with his own funds at a cost of $20,000. Mr. Smith has decided after completing the building to approach Duce Bank to borrow and mortgage the new building with a $16,000 loan. Is Duce Bank likely to provide the $16,000 in financing? What other options may Mr. Smith have to consider?A few years ago, Nuts, Bolts and Brackets, Inc purchased a small warehouse. The firm paid $2.200,000 for the warehouse and $300,000 for construction costs at that time. The owner. "Thunder Dan," (as the locals call him), decides if he wants to expand, he will need more space. He decides to expand the size of the current warehouse. This expansion will cost him about $400,000 to construct a new side to the building. Using the additional space wisely, Dan estimates that he will be able to generate about $70,000 more in sales per year, while incurring $41,500 in labor and variable costs of goods Calculate the amount of the Net Capital Expenditure (NCS) on the project below. Multiple Choice -$2,200,000 -230,000 -$370,000 -$400,000 $271,500 -$70,000Shelton Co. purchased a parcel of land six years ago for $869, 500. At that time, the firm invested $141,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $52,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $921,000. What value should be included in the initial cost of the warehouse project for the use of this land? Group of answer choices $1,062,000 $ 921,000 $0 $869, 500 $1,010, 500