Exam 23: A Comprehensive Analysis for Real Estate Investment Decisions

Correct Answer:

Verified

A) $5,715; B) $129,285
Explanation: Refer to Appendix 20A.
a) $\begin{array}{lr}\text { Purchase price } & \$ 120,000 \\7 \text { years of deprecation }(7 \times \$ 3,300) & \underline{23,100} \\\text { Book value } & \$ 96,900\\\\\text { Net proceeds } & \$ 135,000 \\\text { Book value } & \underline{96,900} \\ \text { Capital gain } & 38,100 \\\text { Capital gains tax rate } & 15 \% \\\text { Capital gains tax } & \$ 5,715\end{array}$

b)
$\begin{array}{lr}\text { Net proceeds } & \$ 135,000 \\ \text {-Capital gains tax } & \frac{5,715}{\$ 129,285}\end{array}$

Correct Answer:

Verified

A) ($6,000); B) $1,800
Explanation: Refer to Appendix 20A.
a)
$\begin{array}{lr}\text { Net operating income } & \$ 15,000 \\ \text { - Depreciation } & 8,000 \\ \text { - Interest expense } & \underline{13,000} \\ \text { Taxable income (loss) } & (\$ 6,000)\end{array}$

b)
$\begin{array}{lr}\text { Taxable loss } & \$ 6,000 \\ \text { Tax Rate } & \underline { .30} \\ \text { Tax shield benefit } & \$ 1,800\end{array}$