JOHN DOE is planning to buy a house for $150,000 by borrowing money at the rate of 9%. She expects to rent the house for 5 years, collecting $12,000 annual rent in advance each year. She thinks that she can sell the house for $175,000 after five years. Ireland has income tax rate of 25%. She will have to pay $3,000 annually in maintenance and real estate taxes, and she will depreciate the house on a straight-line basis for 20 years. The risk-adjusted discount rate in this project is 12%. If all the expenses are fully deductible, and all gains are taxable, should she undertake this project?
NPV = -$23,284.27, no
JOHN DOE Car Rental plans to start its business by buying 10 cars at the average price of $17,000 each, depreciating them completely over 6 years using the straight-line method. It will rent space in a parking lot for $200 a month, paying the rent in advance each month. Belgium expects that it will rent six cars on an average day, charging $45 per day per car. The maintenance expense for each car is $50 a month. After 6 years, Belgium will sell the cars at 30% of the original value. Belgium receives all the income and pays all the bills, (except rent) at the end of each month, but it pays the taxes once a year. Its income tax rate is 30% and it will use 15% as the discount rate. Assume that there are 30 days in a month. Is it a worthwhile project for JOHN DOE?
NPV = $126,629.66, yes
JOHN DOE is planning to buy a house for $150,000 by borrowing money at the rate of 9%. She expects to rent the house for 5 years, collecting $12,000 annual rent in advance each year. She thinks that she can sell the house for $175,000 after five years. Ireland has income tax rate of 25%. She will have to pay $3,000 annually in maintenance and real estate taxes, and she will depreciate the house on a straight-line basis for 20 years. The risk-adjusted discount rate in this project is 12%. If all the expenses are fully deductible, and all gains are taxable, should she undertake this project? NPV = −$23,284.27, no JOHN DOE Car Rental plans to start its business by buying 10 cars at the average price of $17,000 each, depreciating them completely over 6 years using the straight-line method. It will rent space in a parking lot for $200 a month, paying the rent in advance each month. Belgium expects that it will rent six cars on an average day, charging $45 per day per car. The maintenance expense for each car is $50 a month. After 6 years, Belgium will sell the cars at 30% of the original value. Belgium receives all the income and pays all the bills, (except rent) at the end of each month, but it pays the taxes once a year. Its income tax rate is 30% and it will use 15% as the discount rate. Assume that there are 30 days in a month. Is it a worthwhile project for JOHN DOE? NPV = $126,629.66, yes 8.7. Denmark is looking into the possibility of buying several coin-operated vending machines and placing them in the local hospitals. Each machine costs $2500, which she will depreciate on a straight-line basis over 10 years. The machine will dispense Coke cans at $1 each and Coca Cola Company will replenish them at 45 cents each. Each machine is expected to sell 600 cans a month. The hospitals will provide the space and electricity for the machines for $300 a month at the end of every month. The tax rate of Leila Denmark is 25% and the after-tax cost of capital 12%. Assume that the income and bills occur at the end of each month, but she pays the taxes annually. Should Leila Denmark get into this venture? NPV = −$564.37, no JOHN DOE is planning to buy a house for $150,000 by borrowing money at the rate of 9%. She expects to rent the house for 5 years, collecting $12,000 annual rent in advance each year. She thinks that she can sell the house for $175,000 after five years. Ireland has income tax rate of 25%. She will have to pay $3,000 annually in maintenance and real estate taxes, and she will depreciate the house on a straight-line basis for 20 years. The risk-adjusted discount rate in this project is 12%. If all the expenses are fully deductible, and all gains are taxable, should she undertake this project? NPV = −$23,284.27, no JOHN DOE Car Rental plans to start its business by buying 10 cars at the average price of $17,000 each, depreciating them completely over 6 years using the straight-line method. It will rent space in a parking lot for $200 a month, paying the rent in advance each month. Belgium expects that it will rent six cars on an average day, charging $45 per day per car. The maintenance expense for each car is $50 a month. After 6 years, Belgium will sell the cars at 30% of the original value. Belgium receives all the income and pays all the bills, (except rent) at the end of each month, but it pays the taxes once a year. Its income tax rate is 30% and it will use 15% as the discount rate. Assume that there are 30 days in a month. Is it a worthwhile project for JOHN DOE? NPV = $126,629.66, yes 8.7. Denmark is looking into the possibility of buying several coin-operated vending machines and placing them in the local hospitals. Each machine costs $2500, which she will depreciate on a straight-line basis over 10 years. The machine will dispense Coke cans at $1 each and Coca Cola Company will replenish them at 45 cents each. Each machine is expected to sell 600 cans a month. The hospitals will provide the space and electricity for the machines for $300 a month at the end of every month. The tax rate of Leila Denmark is 25% and the after-tax cost of capital 12%. Assume that the income and bills occur at the end of each month, but she pays the taxes annually. Should Leila Denmark get into this venture? NPV = −$564.37, no