Question

Chicago Investors, Inc. is interested in preserving a certified historic structure in downtown Chicago in 2019. The building will cost $2,000,000, and the renovations to rehabilitate the building will cost $2,500,000. Assuming a 5% discount rate that has a factor of 3.546, what is the after-tax cost after claiming the Rehabilitation Credit available to Chicago Investors, Inc.?a. $4,045,400
b. $3,600,000
c. $3,931,750
d. $4,500,000

Answer 1

Answer:

correct answer is a. $4,045,400

Explanation:

given data

building cost = $2,000,000

Rehabilitation cost =  $2,500,000

discount rate  = 5%

factor = 3.546

solution

we get here after-tax cost after claiming the Rehabilitation

so first we get here total cost that is = $2,000,000  + $2,500,000

total cost  = $4,500,000

and here tax saving by credit will be

tax saving by credit = $2,500,000 × 20%

here 20% credit is allow for qualify expenditure that is made to rehabilitate

tax saving by credit  = $500,000

and here credit spread for 5 year it mean $100,000 per year

so here Current year credit is = $100,000

and Present value of credit for the years 2-5  = $100,000 × annuity factor

= $100,000 ×  3.546 =  $354,600

so here Present value of credit will be  = $354,600  + $100,000  

Present value of credit = $454,600

and

After tax cost of credit will be as

After tax cost of credit = $4,500,000 - $454,600

After tax cost of credit = $4,045,400