What recommendation would you make

Assignment Help Accounting Basics

Reference no: EM132634924

Question - A newly-built business property, containing space for a store and two offices, can be purchased for P1, 200, 000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of at least P458, 460 from the property and that the annual out-of-pocket disbursements will not exceed P60, 000.

He believes that he should be able to dispose of the property at the end of 10 years at not less than P700, 000. Annual taxes and insurance will total 2.5% of the first cost.

Required -

(a) Assume he has sufficient equity capital to purchase the property, and that the average return he is obtaining from his capital is 20%. Would you recommend the investment? Use ROR method. Briefly discuss your conclusion. No need to draw the cash flow diagram for this portion.

(b) What recommendation would you make if he had to borrow 25% of the required capital, on the basis of a 10-year amortization with interest of 18%? Use Annual Worth Method.

(c) If the entire capital can be obtained by floating bonds at 15% that will mature in 10 years, what would you recommend? Sinking fund interest is 15%. Use ROR method. Briefly discuss your conclusion.

Reference no: EM132634924

Questions Cloud

What different kinds of boundaries islam imposes : What different kinds of boundaries (prohibitions/limitations) Islam imposes on economic/financial transactions

What can you do as a nurse to improve health factors : What health factors can nurses address to work with young males of a community to improve overall health? (mention at least 3 health factors).

Identify the global maximum of a profit function : Under what conditions will Excel's Nonlinear Solver be guaranteed to identify the global maximum of a profit function?

Prepare a partial amortization table showing : Prepare A partial amortization table showing (1) the original balance of this loan, and (2) the allocation of the first two monthly payments

What recommendation would you make : What recommendation would you make if he had to borrow 25% of the required capital, on the basis of a 10-year amortization with interest of 18%

Identify other agencies that might be involved : Identify other agencies that might be involved. The assignment should be submitted in PowerPoint format, with at least 10 content slides.

Investigate current research developments to identify areas : Demonstrate a commitment towards professionalism and self-evaluation in all aspects of their work - Complete significant research into specialist topics

What are marketable securities : What are marketable securities? List two examples.

Why cash flows differ from net income : Why cash flows differ from net income?

User Account

All Pages