2. You are considering buying a vacation house as an investment property and want to estimate...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. You are considering buying a vacation house as an investment property and want to estimate its value. For simplicity, assume all cash flows occur at the end of each year, with the first cash flow occurring one year from today. Rent revenue is expected to be $14 thousand per year in the first year, growing at 8% per year for 5 years. Maintenance and upkeep will also be growing at 8% per year for 5 years, with $6 thousand of expenses in the first year. After 5 years, both rent revenue and maintenance expense will grow at a constant 3% per year in perpetuity. • You require an annual return of 15% on the investment. What is the present value of this vacation house? 2. You are considering buying a vacation house as an investment property and want to estimate its value. For simplicity, assume all cash flows occur at the end of each year, with the first cash flow occurring one year from today. Rent revenue is expected to be $14 thousand per year in the first year, growing at 8% per year for 5 years. Maintenance and upkeep will also be growing at 8% per year for 5 years, with $6 thousand of expenses in the first year. After 5 years, both rent revenue and maintenance expense will grow at a constant 3% per year in perpetuity. • You require an annual return of 15% on the investment. What is the present value of this vacation house?
Expert Answer:
Answer rating: 100% (QA)
Calculating the Present Value of the Vacation House To determine the present valuewe need to conside... View the full answer
Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Posted Date:
Students also viewed these accounting questions
-
You plan to purchase a $150,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 7.5 percent. You will make a down payment of 20 percent of...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
On December 31, 2021, L Inc. had a $1,600,000 note payable outstanding, due July 31, 2022. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing...
-
Noah D. Canby died on May 9, 2012, as a result of a boating mishap. He is survived by his adult children: Isabella and Benjamin. At the time of his death, Noah lived at 13410 Memorial Drive, Houston,...
-
a. Sodium reacts with excess oxygen to form sodium peroxide, Na 2 O 2 . 2Na + O 2 Na 2 O 2 Calculate the maximum mass of sodium peroxide formed when 4.60 g of sodium is burnt in excess oxygen. (Ar...
-
Name and explain two allocation rules and two allocation keys. Why are allocation rules and keys important to lower-level management? If you were a site manager in a chemical company, with a single...
-
Suppose that S is regarded as a function of P and T. Show that TdS= CpdT- aTVdp. Hence, show that the energy transferred as heat when the pressure on an incompressible liquid or solid is increased by...
-
A new ALP Government decides to implement more meaningful climate policy. It passes the Safe and Clean Environment Act 2023 (Cth). The legislation regulates a diverse range of activities including...
-
Bob Burley and his brother Buford ran the best restaurant in Dallas, Texas. Many out-of-towners would visit Dallas and go to Burleys Biscuits, Beef, and Veggies for a good wholesome meal. One thing...
-
A 0.600 kg block rests on a frictionless horizontal surface, where it is attached to a massless spring whose k-value equals 18.0 N/m. Let x be the displacement, where x = 0 is the equilibrium...
-
How is it that price controls might cause shortages, and why do these shortages increase impact the availability of services? Many have suggested we limit drug prices. Will this work and what is the...
-
If ( 1 / 3 ) ^ x + y = 2 4 3 and log 2 ( 2 y - x ) = 3 , calculate the exact values of x and y algebraically. Show full calculations.
-
The two Countries being used are Canada and the U.S, Use two countries from the region and apply the factor-endowment model of trade to the expected trade patterns. Use the same two countries and...
-
Provides a diagram illustrating the various components and communications of a Tor network by using the following components: Host (OS, Internet connection) Home router, Internet Tor Network VM (OS,...
-
During May, Photo Hut sold 3 5 0 instant cameras for $ 1 7 5 each. Each camera cost Photo Mart $ 1 2 0 to purchase and carried a one - year warranty. If 7 percent typically need to be replaced over...
-
23) A U.S. firm sells merchandise today to a British company for 100,000. The current exchange rate is $2.03/ , the account is payable in three months, and the firm chooses to avoid any hedging...
-
Element compound homogeneous mixture (heterogeneous mixture) 4) A piece of gold has a mass of 49.75 g. What should the volume be if it is pure gold? Gold has a density of 19.3 g/cm (3 points) D=m/v...
-
Use the information for Lockard SE given in BE11.2. (a) Compute 2019 depreciation expense using the sum-of-the-years'-digits method. (b) Compute 2019 depreciation expense using the...
-
On January 1, 2020, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were...
-
On January 1, 2019, Novotna AG purchased 400,000, 8% bonds of Aguirre Co. for 369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The...
-
What are the main components of corporate directional strategies?
-
Define concept growth. What does this mean to entrepreneurial firms?
-
Discuss the significance of discounting in business decision making.
Study smarter with the SolutionInn App