An investor is considering renovating a building. The total cost of renovation is expected to be $100,000, of which 75% can be borrowed. Given the after-tax cash flows to the equity investor as showed below, what is the incremental return from renovating? $$\begin{array} { l r r r r r }
&1&2&3&4&5&\
\text { ATCF after renovation } & \mathbf { 9 , 2 0 0 } & 10,000 & 12,000 & 14,000 & \mathbf { 3 1 6 , 0 0 0 } \
\text { ATCF-no renovation } & 10,000 & 10,200 & 10,440 & 10,600 & 160,900
\end{array}$$

Question

An investor is considering renovating a building. The total cost of renovation is expected to be $100,000, of which 75% can be borrowed. Given the after-tax cash flows to the equity investor as showed below, what is the incremental return from renovating? $$\begin{array} { l r r r r r } 
&1&2&3&4&5&\
\text { ATCF after renovation } & \mathbf { 9 , 2 0 0 } & 10,000 & 12,000 & 14,000 & \mathbf { 3 1 6 , 0 0 0 } \
\text { ATCF-no renovation } & 10,000 & 10,200 & 10,440 & 10,600 & 160,900
\end{array}$$

Quizplus · Accepted Answer

The incremental return from renovating is the difference between the ATCF after renovation and the ATCF without renovation, divided by the initial investment. In this case, the incremental return is (316,000 - 160,900) / 100,000 = 15.32%.

An Investor Is Considering Renovating a Building A) 975% B) 10

An Investor Is Considering Renovating a Building A) 975%
B) 10