# Question: a Calculate the price to rent ratio on the property b Calculate

(a) Calculate the price-to-rent ratio on the property.
(b) Calculate the present value of after-tax cash flow for the property, assuming that the after-tax cash-flow numbers are \$8000 for the first year, \$8400 for the second year, \$8800 for the third year, \$9200 for the fourth year, and \$9600 for the fifth year, and that the selling price of the property will be \$210,000 in five years. Prepare your information in a format similar to Table 16-3, using Appendix A-2 or the Garman/Forgue companion website to discount the future after-tax cash flows to their present values.
(c) Give the Johnsons your advice on whether they should invest in the property at its current price of \$190,000.

Harry and Belinda Johnson are considering purchasing a residential income property as an investment. The Johnsons want to achieve an after-tax total return of 7 percent. They are considering a property with an asking price of \$190,000 that should produce \$27,000 in gross rental income and \$15,000 in net operating income.

View Solution:

Sales3
Views155