You are considering purchasing | Accounting homework help


You are considering purchasing a house for investment purposes, with some of the purchase price paid for with a $25,000 down payment out of your own pocket and the rest paid for by borrowing from the bank. Your plan is to rent the house. You expect that for the next 30 years, while you are still paying off the mortgage on the house, the house will generate zero cash flow. The reason for this is that you expect the amount of rent you receive for the property to be exactly equal to the mortgage payment plus the amount you need to pay to maintain the home for each of the next 30 years.After 30 years from today, you will no longer have to make mortgage payments but will continue receiving rent and you will continue to need to maintain the house. Your analysis indicates that, once the mortgage is paid off, you should be able to generate the same annual cash flow each year from the house forever. For simplicity, assume that the first of these annual cash flows comes exactly 31 years from today, that the amount of each annual cash flow, ????, is the same, and that the cash flows come at the end of each year. The discount rate for this investment is 12% per year compounded annually. a) What is the lowest value of ???? that would make this a positive NPV project for you?In other words, how much annual cash flow would you need to expect the house to generate beginning in year 31 for this to be a good investment?Can this question be done using the TI-84 Plus Calculator?

You are considering purchasing | Accounting homework help


You are considering purchasing a house for investment purposes, with some of the purchase price paid for with a $25,000 down payment out of your own pocket and the rest paid for by borrowing from the bank. Your plan is to rent the house. You expect that for the next 30 years, while you are still paying off the mortgage on the house, the house will generate zero cash flow. The reason for this is that you expect the amount of rent you receive for the property to be exactly equal to the mortgage payment plus the amount you need to pay to maintain the home for each of the next 30 years.After 30 years from today, you will no longer have to make mortgage payments but will continue receiving rent and you will continue to need to maintain the house. Your analysis indicates that, once the mortgage is paid off, you should be able to generate the same annual cash flow each year from the house forever. For simplicity, assume that the first of these annual cash flows comes exactly 31 years from today, that the amount of each annual cash flow, ????, is the same, and that the cash flows come at the end of each year. The discount rate for this investment is 12% per year compounded annually. a) What is the lowest value of ???? that would make this a positive NPV project for you?In other words, how much annual cash flow would you need to expect the house to generate beginning in year 31 for this to be a good investment?Can this question be done using the TI-84 Plus Calculator?

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