Problem 12-58 MACRS Depreciation and Capital Budgeting Analysis; Spreadsheet Application; Sensitivity Analysis [L0 12-1, 12-4, 12-5] [The following information applies to the questions displayed below}.T You and your spouse have recently inherited money from a distant relative and are considering a number of investment opportunities, one of which would involve residential real estate. Specifically, you have an opportunity to purchase an apartment complex with 25 rental units. The total price for these units, including sales commission expense. is estimated as $500,000. You estimate that to make each unit suitable for renting, average remodeling costs of $20,000 per unit would be needed. Fifteen ofthe units have a single bedroom and rent for $500 per month: the remaining units contain two bedrooms and rent for $650 per month. A friend of yours who is in the business suggests that ordinary maintenance and repair costs be budgeted, annually, at 16% of rental revenue. Both the purchase price ofthe units and the remodeling costs qualify as 2?.5-year MACRS property. In terms of calculating depreciation expense for tax purposes, you can assume that MACRSbased deductions forthe rst 2? years will be the same: in year 28, onehalfyear of depreciation will be deducted. The present value of MACRSbased depreciation deductions can be found by multiplying the following three items: depreciable cost ofthe asset, tax rate it], and PV depreciation factor [at 8%, 0.33588; at 10%, 0.39851; at 12%. 0.28828). lfthe remodeling is undertaken and annual maintenance is done as scheduled, the investment should last at least 30 years. The estimated net salvage value ofthe investment 30 years from now is $0. Assume, initially, an opportunity cost of capital of10% for purposes of evaluating this investment proposal. You and your spouse feel that your combined income tax rate for the foreseeable future would be approximately 40%. Part1 Required: 1. What is the estimated NPV of this proposed investment? (Hints: As noted above, at a discount rate of 10%, the present value of MACRSbased depreciation deductions for 2?.5year property is equal to the product of the tax rate it}. the initial investment outlay, and 0.33588. :or other present value calculations. use the appropriate present value annuity factor for 10%. 30 years found in appendix C. Table 2 {that is. 9.427}.) 2. What woulc the estimated NPV be if the discount rate were 8% rather than 10%? (Hint. The present value of MACRS-based depreciation deductions for the property in question equals the product ofthe tax rate it], the depreciable cost ofthe asset, and 0.39851} The 3. What would present value annuity factor for 8%, 30 years [appendix C, Table 2] is 11.258. the estimated NPV be ifthe discount rate were 12% rather than 10%? (Hint. The present value of MACRSbased depreciation deductions for the property in question equals the product ofthe tax rate it), the depreciable cost ofthe asset, and 028828.} The present value annuity factor for 12%, 30 years {appendix C, Table 2] is 8.055. (For all requirements. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar amount} Estimated NPV at a discount rate of 10% 6 Answer is complete but not entirely correct. (413.102) 2. Estimated NP'vr at a discount rate of 3% $ (402,751) Estimated NPV at a discount rate oi12% (429.73?)