1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Allisa [31]
3 years ago
12

The monthly income from a piece of commercial property is $1,200. Annual expenses are $3,000 for upkeep of the property and $1,0

00 for property taxes. The property is surrounded by a security fence that cost $4,000 to install four years ago.
Required:
a. If i 8.6% per year (the MARR) is an acceptable interest rate, how much could you afford to pay now for this property if it is estimated to have a resale value of $150,000 9 years from now?
b. Let's assume that the interest rate is 5%. If the 5% interest had been a nominal interest rate, what would the corresponding effective annual interest rate have been with bi-weekly (every two weeks) compounding?
Business
1 answer:
Alborosie3 years ago
8 0

Answer:

a. The amount you could afford to pay now for this property is $134,765.04.

b. Effective annual rate (EAR) = 5.12%

Explanation:

a. If i 8.6% per year (the MARR) is an acceptable interest rate, how much could you afford to pay now for this property if it is estimated to have a resale value of $150,000 9 years from now?

Step 1: Calculation of the present value of the annual net cash inflow

This can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVAC = AC * ((1 - (1 / (1 + i))^n) / i) …………………………………. (1)

Where;

PVAC = Present value of the annual cash inflow = ?

AC = Annual net cash inflow = (Annual rent * Number of months in a year) – Annual property upkeep expense – Annual property tax = ($1,200 * 12) - $3,000 - $1,000 = $10,400

i = annual interest rate = 8.6%, or 0.086

n = number of years = 9

Substitute the values into equation (1), we have:

PVAC = $10,400 * ((1 - (1 / (1 + 0.086))^9) / 0.086) = $63,377.43

Step 2: Calculation of the present value of the resale value

This can be calculated using the formula for calculating the present value as follows:

PVRV = RV / (1 + i)^n ........................... (2)

Where;

PVRV = present value of the resale value = ?

RV = resale value = $150,000

i = annual interest rate = 8.6%, or 0.086

n = number of years = 9

Substitute the values into equation (2), we have:

PVRV = $150,000 / (1 + 0.086)^9 = $71,387.61

Step 2: Calculation of the amount you could afford to pay now for this property

PVAC = Present value of the annual cash inflow = $63,377.43

PVRV = present value of the resale value = $71,387.61

Amount you could afford to pay now = PVAC + PVRV = $63,377.43 + $71,387.61 = $134,765.04

b. Let's assume that the interest rate is 5%. If the 5% interest had been a nominal interest rate, what would the corresponding effective annual interest rate have been with bi-weekly (every two weeks) compounding?

The effective annual rate (EAR) can be calculated using the following formula:

EAR = ((1 + (i / n))^n) - 1 .............................(3)

Where;

i = Annual nominal interest rate = 5%, or 0.05

n = Number of compounding periods in a year = Number of bi-week in a year = Number of weeks in a year / 2 = 52 / 2 = 26

Substitute the values into equation (3), we have:

EAR = ((1 + (0.05 / 26))^26) - 1 = 0.0512206204121786, or 5.12206204121786%

Rounding to 2 decimal places, we have:

EAR = 5.12%

You might be interested in
Employees at Fratelli Inc. are encouraged to participate in decision making. Organizational control is based on group norms and
BARSIC [14]

Answer:

Letter a is correct. <u><em>Descentralized control</em></u>.

Explanation:

A company that has decentralized control has a more flexible hierarchy, where all employees are motivated to contribute ideas and opinions and participate in the decision making process. Decentralized management is common in large companies, such as Google and Dell, which ensures greater autonomy and freedom of action for employees.

The biggest benefits seen by decentralization are the flexibility to adapt to market changes, the speed of decision making that prevents opportunity costs, and the sense of motivation and value creation between employee and organization.

6 0
3 years ago
A manager must make a decision on shipping. There are two shippers, A and B. Both offer a two-day rate: A for $526 and B for $53
MrMuchimi

Answer

The answer and procedures of the exercise are attached in the following archives.

Explanation  

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.  

6 0
3 years ago
You are given the following information for Watson Power Co. Assume the company’s tax rate is 24 percent. Debt: 14,000 6.3 perce
Alenkinab [10]

Answer:

10.18%

Explanation:

The computation of the WACC is shown below:

But before that following calculation is to be done

The value of debt is

= 14000 × $1,000 × 107%

= $14,980,000

The value of equity is

= 470,000 × $65

= $30,550,000

The value of preferred stock is

= 20,500 × $86

= $1,763,000

Now

value of total capital is

= $14,980,000  + $30,550,000 + $1,763,000

= $47,293,000

Now we find the cost of debt using excel function i.e.

= RATE(nper,pmt,pv,fv)) × 2

= RATE(29 × 2,1000 × 6.3% ÷ 2,-1000 × 107%,1000)) ×2

= 5.80%

Now  

Cost of common stock is

= 5.2% + 1.16 × 7%

= 13.32%

cost of preferred stock is

= (100 × 4.1%) ÷ 86

= 4.77%

Now finally  

WACC = weight of debt × cost of debt ×(1 - tax rate) + weight of equity × cost of equity + weight of preferred stock ×cost of preferred stock

= ($14,980,000 ÷ $47,293,000) × 5.80% × (1  - 24%)+($30,550,000 ÷ $47,293,000) × 13.32% + ($1,763,000 ÷ $47,293,000) ×4.77%

= 10.18%

5 0
3 years ago
Marvin Corporation has the following information reported on the balance sheet as of December 31, 2017 Common Stock, $10 par val
SCORPION-xisa [38]

Answer:

  • How many shares of common stock are outstanding?

C. 3,000

Explanation:

Treasury stock, are those that the company repurchase from the market and keep it in the company, in this case the company keep the shares in the accounting and the shares could be reissued in the future.

The company issued 9,000 shares, it is reflected in the Common Stock account,  $90.000 / $10 = 9,000.

Then in the Treasury Stock account are registered the shares that the company repurchases from the market, these are, 6,000 shares.

Finally the total Common Shares outstanding are 3,000.

3 0
3 years ago
"Suppose you wish to have $5,500 in 18 years. Use the present value formula to find how much you should invest now at 6% interes
Irina-Kira [14]

Answer:

The amount of investment should be $1926.891 approximately

<u>Explanation:</u>

The following formula has been used to calculate the amount of investment

A = P(1+r/100) ^n

where: A = future value , P = present value , R = rate of interest , N = time period

Hence , applying the formula, we get,

$5500 = P (1+6/100) ^18

Hence P=$5500/ (1.06) ^18

=$1926.891(approx)

7 0
3 years ago
Other questions:
  • Sloan Transmissions, Inc., has the following estimates for its new gear assembly project: price = $2,900 per unit; variable cost
    15·1 answer
  • Calculate real gdp given nominal gdp and inflation
    7·1 answer
  • What is the multifactor productivity for Space Z Inc. using the following data?
    7·1 answer
  • On december 31, slugger batting cages company decides to trade in one of its batting cages for another one that has a cost of $5
    13·2 answers
  • A commercial real estate loan may take 90 days from the signing of the purchase and sale contract until loan closing. Therefore,
    6·1 answer
  • Which investment is best for someone who is likely to need cash soon? mutual fund CD 401(k) savings account
    11·2 answers
  • Sandra wants to deposit $100 each year for her son. if she places it in an investment account that averages a 5% annual return,
    10·1 answer
  • 10. The Kokorapolus's are married and are filing a joint tax return. Their gross income is $35,836. They are claiming $1,000 in
    15·1 answer
  • Why is it important to plan early for your retirement?
    9·1 answer
  • Which approach to research is based on observing people in their own homes or​ communities?
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!