Question

In: Finance

Bob is considering buying a home and selling it in one year. At t=0 he buys...

Bob is considering buying a home and selling it in one year. At t=0 he buys a house, the price is $100,000. At t=1 the house appreciates (i.e. the price goes up) by 20%, and Bob sells it.

Bob also pays transaction costs: buying costs are 5% of buying price, selling costs are 8% of selling price. Each time period is a year. Bob does not take any mortgages. Find the NPV of this project if the interest rate is 4%.

Solutions

Expert Solution

Calculation of NPV

Particulars T-0 T-1
Purchase Cost $ -100,000.00                        -  
Buying Cost $       -5,000.00                        -  
Selling Price                         -   $ 120,000.00
Selling Cost                         -   $      -9,600.00
Net Cash Flows $ -105,000.00 $ 110,400.00
Discounting Factor @ 4%                     1.00                   0.96
Present Value of Cash Flows $ -105,000.00 $ 105,984.00

NPV = -$105,000.00 + $105,984.00 = $984

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

1) Bob is considering buying a home and selling it in one year. At t=0 he...
1) Bob is considering buying a home and selling it in one year. At t=0 he buys a house, the price is $100,000. At t=1 the house appreciates (i.e. the price goes up) by 20%, and Bob sells it. Bob also pays transaction costs: buying costs are 5% of buying price, selling costs are 8% of selling price. Each time period is a year. Bob does not take any mortgages. Find the NPV of this project if the interest rate...
1. Bob is considering buying a home and selling it in one year. At t=0 it...
1. Bob is considering buying a home and selling it in one year. At t=0 it will cost him $100,000 to buy the home. At t=1 he will sell it for $150,000. Buying transaction costs (at t=0) are 5% of the purchase price, and selling transaction costs (at t=1) are 8% of the sale price. Note: each time period is a year. Write out the Net Present Value function for Bob s investment for a general annual discount rate i....
bob buys a property for $140,000. He is offered a 25-year loan by the bank, at...
bob buys a property for $140,000. He is offered a 25-year loan by the bank, at an interest rate of 6.88% per year. What is the annual loan payment Dan must make?   ________. A businessman wants to buy a truck. The dealer offers to sell the truck for either $145,000 now, or 7 yearly payments of $24,000. What interest rate would make these two options financially equivalent?
An investor buys a share of stock for $40 at time t = 0, buys another...
An investor buys a share of stock for $40 at time t = 0, buys another share of the same stock for $50 at t = 1, and sells both shares for $60 each at t = 2. The stock paid a dividend of $1 per share at t = 1 and at t = 2. The periodic money weighted rate of return on the investment is closest to: 23.0% 22.2% 23.8%
You are a manager at a manufacturing company. Today (year 0), you are considering buying a...
You are a manager at a manufacturing company. Today (year 0), you are considering buying a new product line that produces ventilators. Here are the details of this project: • At year 0, you will purchase the manufacturing equipment needed for $5,000,000. The equipment can be depreciated to zero using straight line depreciation over five years (year 1-5). At the end of year 5, the book value of the equipment becomes $0, and you will sell it for $500,000. •...
a) T&T Workshop is considering a four-year project to improve its production efficiency. Buying a new...
a) T&T Workshop is considering a four-year project to improve its production efficiency. Buying a new machine press for $560,000 is estimated to result in $210,000 in annual pre-tax cost savings. The press will be depreciated straight-line to zero over its four-year tax life. Assume the tax rate is 25 percent. Compute the operating cash flow and net present value for this new machine press. If the required return is 12 percent, should T&T Workshop buy in the new machine...
a) T&T Workshop is considering a four-year project to improve its production efficiency. Buying a new...
a) T&T Workshop is considering a four-year project to improve its production efficiency. Buying a new machine press for $560,000 is estimated to result in $210,000 in annual pre-tax cost savings. The press will be depreciated straight-line to zero over its four-year tax life. Assume the tax rate is 25 percent. Compute the operating cash flow and net present value for this new machine press. If the required return is 12 percent, should T&T Workshop buy in the new machine...
You are considering buying a bond that matures in one year. The current market price is...
You are considering buying a bond that matures in one year. The current market price is $839.00. Par value is $1000. The coupon is 8%. Assuming the company does not default and pays off the bond at maturity, what would be your total return on the bond if you purchased it today at $839.00? a. 22.45% b. 24.58% c. 28.73% d. 31.33%
You are considering investing $1,000,000 now (t= 0) in one of the two projects, Mono and...
You are considering investing $1,000,000 now (t= 0) in one of the two projects, Mono and Singe. Project Mono is a 1-year project and Project Singe is a 3-year project. The two projects are expected to provide their respective cash flows illustrated in the table below. Project Cash Flow at t = 1 Cash Flow at t = 2 Cash Flow at t = 3 Mono $1,100,000 0 0 Singe $50,000 $ 50,000 $ 1,150,000 Which project would you invest...
A simple pendulum of length 0.50 m has a 0.30-kg bob. At t = 0, the...
A simple pendulum of length 0.50 m has a 0.30-kg bob. At t = 0, the bob passes through the lowest position in its motion, and at this instant it has a horizontal speed of 0.39 m/s . A. What is the maximum angular displacement ϑmax away from vertical that the pendulum reaches? B. What is the magnitude of the bob's linear speed v when it has angular displacement ϑmax/2?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT