Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 7

Robert Cooper is considering purchasing a piece of business rental property containing stores and offices at a cost of $250,000. Cooper estimates that annual disbursements (other than income taxes) will be about $12,000. The property is expected to appreciate at the annual rate of 5%. Cooper expects to retain the property for 20 years once it is acquired. Then it will be depreciated as a 39-year real-property class (MACRS), assuming that the property will be placed in service on January 1st. Cooper's marginal tax rate is 30% and his MARR is 15%. What would be the minimum annual total of rental receipts that would make the investment break even