Question

Problem 8-16 (LO. 1) dropdown Georye is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events (e.g., antique automobile shows) while he is holding them. George sold a classic automobile this year for $1,500,000. He had held the automobile for five years, and it had a tax basis of $750,000. a. Was the automobile a capital asset? No. It is depreciable property used in a business. b. Assuming a rate of return of 7%, how much would he have had to invest five years ago (instead of putting $750,000 into the car) to have had $1,500,000 this year? The present value factor for 5 years at 7% is 7130.

Answer 1

Answer is 1,069,479.27

simple PV = FV/ (1+I)^N

so PV = 1500000/(1.07)^5

meaning if today you were to invest the $1,069,479.27 at a rate of 7.00%, you would have $1,500,000.00 at the end of 5 time periods.