IGNACIO, ERRON C. Prof.

Anne Jane Gamboa

BATCH 2 – Mon.&Thu. Real Estate Finance

1. Mr. Blue sold to Mrs. Reed in June 1997 a residential lot for P960,000.00
inclusive of a P100,000.00 mortgage to be assumed by the buyer. Mrs. Reed gave a
downpayment of P60,000.00 and the balance shall be paid in 8 equal monthly
installments without interest beginning July 1997. Mr. Blue realized a gross profit of
25% of acquisition cost. Compute the following:

a. Selling price
P860,000.00 + P 100,000.00 = P 960,000.00

b. Contract price
960,000.00 - P 100,000.00 = P 860,000.00

c. Initial payment for taxable year 1997

Downpayment = P 60,000.00 + Installment (July- Dec) P100,000 x 6 mos. = P660,000.00
Total Payment for 1997 = P 660,000.00

d. Gross profit
Selling Price = P 960,000.00 less acquisition (P960,000.00 divided by 125%) = P
768,000.00
Gross profit = P 192,000.00

e. Gross profit rate for tax purpose

192000/960000 = 20%

f. Taxable income for 1997 and 1998 

Taxable income for 1997: 20% of P 660,000.00 = = P 132,000.00
Taxable income for 1998: 20% of P200,000.00 = P 40,000.00

2. An investor bought an apartment property for P45M. The property earns a

monthly income of P300,000.00 and its annual fixed and operating expenses total
P400,000.00. What is his rate of return on investment? 
Annual income = P300,000.00 x 12 = 3,600,000
Annual fixed and operating expenses = P400,000.00
Property cost = P45M

Rate of return of investment = (3,600,000-400,000) / (45,000,000) = 7.11%

3. Mr. Cui is into land banking. He bought a 3-hectare rawland at P10/sqm.
a. If his cost of money is compounded 100% every 5 years, what will be
his cost after 20 years?
3 has. = 10,000sq.m.
Cost of rawland = 10,000 x 3 x 10 = 300,000
Compounded Annually = 1000%/5 = 20%
F = P(1+(r/t))^nt
Wherein:
F = Future value
P = Principal Amount
R = rate
T = years
N = compounding per periods
F = 300,000(1+(0.20/1))^1*20
F = P11,501,279.98

b. If he will sell the land for P200/sqm. after 20 years, what will be his
gross profit?
200(30,000) – 10(30,000) = P5,700,000