Exam 26: A Comprehensive Analysis for Real Estate Investment Decisions

Correct Answer:

Verified

a) $$\begin{array} { l r } \text { Net operating income } & \$ 15,000 \\\text { - Depreciation } & 8,000 \\\text { - Interest expense } & \underline { 13,000 } \\\text { Taxable income (loss) } & ( \$ 6,000 )\end{array}$$ b) $\begin{array}{c}\begin{array}{lll} \text {Taxable loss}\\ \text {Tax Rate}\\ \text {Tax shield benefit}\end{array}\begin{array}{r}\$ 6,000 \\\underline{ .30} \\\$ 1,800\end{array}\end{array}$

Correct Answer:

Verified

a) $\begin{array}{c}\begin{array}{lll} \text {Purchase price}\\ \text {7 years of deprecation \( (7 \times \$ 3,300) \)}\\ \text {Book value}\\\\ \text {Net proceeds}\\ \text {Book value}\\ \text {Capital gain}\\ \text {Capital gains tax rate}\\ \text {Capital gains tax}\end{array}\begin{array}{r}\$ 120,000 \\\underline{23,100 }\\ \$ 96,900 \\\\\$ 135,000 \\\underline{96,900 }\\ 38,100 \\15 \% \\\$ 5,715\end{array}\end{array}$
b) $\begin{array}{c}\begin{array}{lll}\text {Net proceeds}\\\text {-Capital gains tax}\\\text {Net funds from the sale}\end{array}\begin{array}{r}\$ 135,000 \\\underline{ \$5, 715} \\ \$ 129,285\end{array}\end{array}$