Question

Clarice purchased raw land for $1,000 per acre. She pays $80 per acre for annual real estate taxes and has various expenses of about 8% per year. By how much per year must the land appreciate in order for Clarice to break even?

a) $80 per acre
b) $80 + 8% of $1,000 per acre
c) $80 + 8% of the total expenses per acre
d) $1,080 per acre

Answer 1

Clarice must have her land appreciate by $160 per acre each year to break even, covering both her $80 tax expense and an additional $80 accounting for 8% of the purchase price.

Step-by-step explanation:

To calculate how much per year the land must appreciate for Clarice to break even, we need to consider both her annual expenses and the original cost of purchasing the land. Clarice's expenses are $80 per acre for taxes and an additional 8% of the purchase price, which for $1,000 is $80 (8% of $1,000).

The total of these expenses is $80 for taxes plus the $80 as 8% of the purchase price ($1,000), which equals $160.

Therefore, for Clarice to break even, her land must appreciate by $160 per acre each year, which corresponds to the original $80 taxes and the 8% expenses on the purchase price.