1. (15 pts). A new warehouse is under construction that will rent out its space

Question

1. (15 pts). A new warehouse is under construction that will rent out its space and material moving capabilities on a modular basis. The land for the warehouse will cost $1.5 Million, and the building will cost $4.5 Million. The building is a MACRS 39-year asset. If the warehouse will be put into service in April of 2020, and sold in November of 2028, a) compute the annual depreciation amounts and insert them into the table below for thi:s property. b) If the Nov. 2028 sale price for land and building is $7.5 Million, compute the gains on this sale. Year Depreciation 2020 2021 2022 2023 2024 2025 2026 2027 2028

Explanation / Answer

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a Annual Depreciation amount Year Cost of building Rate Depreciation 2020 $4,500,000 1.82% $81,855.00 2021 $4,500,000 2.56% $115,380.00 2022 $4,500,000 2.56% $115,380.00 2023 $4,500,000 2.56% $115,380.00 2024 $4,500,000 2.56% $115,380.00 2025 $4,500,000 2.56% $115,380.00 2026 $4,500,000 2.56% $115,380.00 2027 $4,500,000 2.56% $115,380.00 2028 $4,500,000 2.56% $115,380.00 $1,004,895.00 b Gain on sale of land and building Cost of land $1,500,000 Cost of bulding $4,500,000 Less: Depreciation $1,004,895 Net cost of land and building $4,995,105 Sale price of land and building $7,500,000 Gain on sale of land and building $2,504,895

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