Suppose that you expect to replace the roof on your commercial property in 5 yea

Question

Suppose that you expect to replace the roof on your commercial property in 5 years at a cost of $70,000. How much would you need to save each month (monthly compounding) if you can earn 2% interest? O $793 O $ 952 O $1,110 O $1,269 O $1,428 Question 10 10 pts Suppose that you are considering the purchase of a parcel of land for $200,000. The property is vacant and produces no income, but there are property taxes of $4,000 per year that must be paid. If you hold the property for 5 years, and get $300,000 from the sale, what would your return be on this investment? 6.74% 8.47% 10. 16% 11.80% 13 40%

Explanation / Answer

1.. ANSWER: c. $ 1110   (as explained below) We need to find the monthly annuity of X amt. Whose future value at end of 5 yrs. Ie. 5 yrs.*12 mths.= 60 months at 2% p.a.ie.2%/12= 0.1667% p.m .interest   is $ 70000 (Future Value) So, using FV of annuity formula FV= Monthly Savings*((1+r)^n-1)/r & substituting the above values, 70000=Pmt.*((1+0.001667)^60-1)/0.001667 Solving the above, we get the monthly savings as 1110.27 ie. 1110 10… ANSWER: a. 6.74% Year 0 -200000 Initial Investment 1 -4000 Annual cash outflow 2 -4000 3 -4000 4 -4000 5 296000 (300000-4000) IRR= 6.74%

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