Answer:
Acquiring the property will not be profitable. This is supported by the computation below;
Cash outflow required;
Offer cost $200,000
Other acquisition cost $10,500
Repairs cost $12,000
Selling expenses and fee $3,000
Loan Interest (180,000x8%) <u>$14,400</u>
<u> </u> Total $239,900
Expected selling price <u>$225,000</u>
Expected Loss <u> $14,900</u>
<u />
Explanation:
It is assumed that the $180,000 loan from the bank will be completely absorbed in the process of bringing the property into a good selleable condition. Also, the interest payable on loan will be paid monthly which will affect the liquidity of the buyer. Except funds are sought for somewhere else, the buy can not pay for the initial cost of the property. The venture will not be profitable.
Workings:
Cash outflow required;
Offer cost $200,000
Other acquisition cost $10,500
Repairs cost $12,000
Selling expenses and fee $3,000
Loan Interest (180,000x8%) <u>$14,400</u>
<u> </u> Total $239,900
Expected selling price <u>$225,000</u>
Expected Loss <u> $14,900</u>
<u />
