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(Solution) - You are considering constructing a luxury apartment building project that

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You are considering constructing a luxury apartment building project that requires an investment of $ 15,500,000, which comprises $ 12,000,000 for the building and $3,500,000 for land. The building has 50 units. You expect the maintenance cost for the apartment building to be $350,000 the first year and $400,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $85,000 per year. After five years of operation, the apartment building can be sold for $ 17,000,000. What is the annual rent per apartment unit that will provide a return on investment of 15% after tax? Assume that the building will remain fully occupied during the five years. Assume also that your tax rate is 35%. The building will be depreciated according to 39-year MACRS and will be placed in service in January during the first year of ownership and sold in December during the fifth year of ownership.


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This question was answered on: Jul 11, 2017

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