Mr. Sam K. Jones, a successful businessman, isconsidering

Chapter , Problem 12-35

(choose chapter or problem)

Mr. Sam K. Jones, a successful businessman, isconsidering erecting a small building on a com- mercial lot. A local furniture company is willing tolease the building for $9000 per year, paid at theend of each year. It is a net lease, which meansthe furniture company must also pay the propertytaxes, fire insurance, and all other annual costs.The furniture company will require a 5-year leasewith an option to buy the building and land onwhich it stands for $125,000after 5 years.Mr. Jonescould have the building constructed for $82,000.He could sell the commercial lot now for $30,000,the same price he paid for it. Mr. Jones files ajoint return and has an annual taxable income fromother sources of $63,900. He would depreciate thecommercial building by modified accelerated costrecovery system (MACRS) depreciation. Mr. Jonesbelieves that at the end of the 5-year lease he couldeasily sell the property for $125,000. What is theafter-tax present worth of this 5-year venture if Mr.Jones uses a 10% after-tax MARR?