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Korolek [52]
2 years ago
13

Tom takes a loan of $60,000 at 4% annual interest to purchase a property worth $100,000. He earns an annual income of $10,000 af

ter expenses but before interest and income taxes are deducted. If the income tax rate is 30%, calculate Tom's leveraged return on the real estate investment
Business
1 answer:
guajiro [1.7K]2 years ago
8 0

Based on the given data, Tom's leveraged return on the real estate investment is 13.3%.

A leveraged return means an investment return on equity partially financed with debt.

Investment in property = $100,000 - $60,000

Investment in property = $40,000

Interest = $60,000 * 4%

Interest = $2,400

Net income after tax = ($10,000 - $2,400) * (1 - 30%)

Net income after tax = $7,600 * 0.70

Net income after tax = $5,320

Leveraged return = Net income after tax / Investment in property * 100

Leveraged return = $5,320 / $40,000 * 100

Leveraged return = 0.133 * 100

Leveraged return = 13.3%

Hence, Tom's leveraged return on the real estate investment is 13.3%.

Learn more about leveraged return:

<em>brainly.com/question/14005616</em>

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Answer:

d. 8%

Explanation:

The computation of the discount rate is shown below:

Initial investment = Present value of cash inflows

where,

Initial investment is $7,139,000

And, the present value of cash inflows

= Annual cash inflows × discount rate

We assume the discount rate be X

$7,139,000 = $1,000,000 × X

So,

X = 7139000 ÷ 1000000 = 7.139

= 8%

We simply applied the above formula in order to find out the discount rate

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3 years ago
Name one alternate option to establish credit if you are unable to get a credit card.
Alinara [238K]

Answer:

Explanation:

Its letstute.

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6 0
3 years ago
Assume that the market equilibrium price is 50 cents for a pound of bananas, and the quantity sold is roughly 10 pounds. What ki
nekit [7.7K]

Answer:

The price control that could generate excess supply is to increase the price to 75 cents which would give the suppliers an incentive to supply since the potential profits have risen.

Explanation:

Market equilibrium can be defined as the point where market supply and market demand are equal,leading to stabilization of prices. The forces of supply and demand usually control the price at which goods and services will be set. Economists like Adam Smith utilized the concept of the free market to stipulate that the forces of supply and demand in a market will no government interference always push the market to it's equilibrium. Equilibrium generally means that the forces in the market have no incentive of changing their behavior.

Supply can be defined as the act of making something available to someone. In the context of an economy, the suppliers make goods and services available to the consumers. Demand on the other hand is the quantity of a good or service that consumers are willing purchase at a certain price. When demand exceeds the supply, the suppliers increase the price and when the supply exceeds the demand, the price drops.

In our case, increasing the price to 75 cents would give the suppliers an incentive to supply since the potential profits have risen. This would lead to excess supply since the price is set above the equilibrium price.

8 0
3 years ago
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five y
Vaselesa [24]

Answer:

The answer is:

A. Find the detailed calculation in the explanation section.

B. $6.33

C. $145.59/share

Explanation:

A.

Current dividend paid is $1.21

Growth rate for the next 5 years is 16 percent.

Dividend per share in Year 1 = $1.40 per share [$1.21 x 1.16]

Dividend per share in Year 2 = $1. 62 per share [$1.40 x 1.16]

Dividend per share in Year 3 = $1.88 per share [$1.62 x 1.16]

Dividend per share in Year 4 = $2.18 per share [$1.88 x 1.16]

Dividend per share in Year 5 = $2.53 per share [$2.18 x 1.16]

B.

Earnings per share (EPS) in Year 5 = Dividend per share in year 5 / Pay-out Ratio

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C.

Target stock price in five years = EPS in Year 5 x Benchmark P/E Ratio

= $6.33 per share x 23times

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5 0
3 years ago
A perpetuity has a PV of $34,000. If the interest rate is 6%, how much will the perpetuity pay every year
Svetradugi [14.3K]

Answer:

The perpetuity pays $2,040 every year.

Explanation:

The formula to find the present value of a perpetuity is

present value = cash flow/interest rate

In this question we are given the interest rate and present value and we need to find the cash flow, so we will just input these values in the formula.

Present value = 34,000

Interest rate =6%

34,000=Cash flow/0.06

34,000*0.06= cash flow

Cash flow =2,040

6 0
3 years ago
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