17 alue 2.50 points Problem 7-1 (LO71) Based on the following data, would you re

Question

17 alue 2.50 points Problem 7-1 (LO71) Based on the following data, would you recommend buying or renting? Rental Costs Annual rent Insurance Security deposit Buying Costs S 8,130 Annual mortgage payments $ 220 Property taxes 1,400 Down payment/closing costs $ 10,550 (9,950 is interest) $ 2,080 $ 5,100 Growth in equity Insurance/maintenance 600 $ 1,800 $ 2,450 Estimated annual appreciation Assume an after-tax savings interest rate of 9 percent and a tax rate of 26 percent. Assume this individual has other tax deductions that exceed the standard deduction amount. a. Calculate total rental cost and total buying cost. (Do not round intermediate calculations. Round your answers to the nearest whole dollar.) Rental cost Buying cost b. Would you recommend buying or renting? O Buying O Renting

Explanation / Answer

Buying costs

Annual mortgage payments

Property taxes

Interest lost on down payment/closing costs(5100*9%)

Growth in equity

Estd. Annual appreciation

Tax savings on Mortgage interest(9950*26%)

Tax savings on property taxes(2080*26%)

WORKINGS: Rental costs

Buying costs

Annual rent 8130

Annual mortgage payments

10550 Insurance 220

Property taxes

2080 Interest lost on security deposit(1400*9%) 126 Insurance/maintenance 1800

Interest lost on down payment/closing costs(5100*9%)

459

Growth in equity

-600

Estd. Annual appreciation

-2450

Tax savings on Mortgage interest(9950*26%)

-2587

Tax savings on property taxes(2080*26%)

-541 Total cost 8476 Total cost 8711 a. Rental cost 8476 Buying cost 8711 b. Recommend Renting

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