Slide MGT312 Slide12

Real Estate and High-Risk

Real Estate and High-Risk

Investments

Investments

Real Estate

•It consists of land, all structures

permanently attached to the land, and

accompanying rights and privileges, such as crops and mineral rights.

Capital Gain

•Price appreciation leads to capital gains.

•_{Capital gains = sale price – (purchase}

price + capital improvement.

•_{Repair expenses are not included in the}

calculation above.

Beneficial Tax Treatments

•Depreciation is tax deductible.

•_{Interest is tax deductible.}

•Tax-free exchanges.

•Capital gains are taxed at reduced rates.

Pricing Real Estate

•Discounted cash-flow method can be used to price real estate.

•The method discounts after-tax cash flow at the required return.

•_{All discounted cash flows are summed to}