1 answer

The asking price for the property is $1.000.000 rents are estimated at $200,000 during the 1st...

Question:

The asking price for the property is $1.000.000 rents are estimated at $200,000 during the 1st year and are expected to grow

The asking price for the property is $1,000,000: rents are estimated at $200,000 during the Hirst year and are expected to gr
The asking price for the property is $1.000.000 rents are estimated at $200,000 during the 1st year and are expected to grow at 5 percent ner vear. Vacancies and collection losses are expected to be 10% of rents. Operating expenses will be 35 percent of effective gross income. Capital expenditures will be 5% of effective gross income. A 30-year fixed rate loan for 70 percent of the purchase price can be obtained at 10 percent interest rate. The property is expected to appreciate at 3 percent per year and is expected to be owned for seven years and then sold. The sale cost is 6% of the sale price. The investor tells you he would also like to know how tax considerations affect your investment analysis. You determine that the building represent 90 percent of value and would be depreciated over 27.5 years. The potential investor indicates that he is in the 28 percent tax bracket. Capital gains tax rate is 20% while depreciation recapture tax rate is 25%. b. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? Show your work. (2 points)
The asking price for the property is $1,000,000: rents are estimated at $200,000 during the Hirst year and are expected to grow at 5 percent per vear. Vacancies and collection losses are expected to be 10% of rents. Operating expenses will be 35 percent of effective gross income. Capital expenditures will be 5% of effective gross income. A 30-year hixed rate loan for 70 percent of the purchase price can be obtained at 10 percent interest rate. The property is expected to appreciate at 3 percent per vear and is expected to be owned for seven years and then sold. The sale cost is 6% of the sale price. The investor tells you he would also like to know how tax considerations affect your investment analysis. You determine that the building represent 90 percent of value and would be depreciated over 27.5 years. The potential investor indicates that he is in the 28 percent tax bracket. Capital gains tax rate is 20% while depreciation recapture tax rate is 25%. a. b. Write down the cash flows pro forma for year 1 to year 7. (5 points) What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? Show your work. (2 points) What is the investor's expected after-tax internal rate of return on equity invested (ATIRR)? Show your work? (2 points) c.

Answers

Use spreadsheet for the ease in computations. Enter values and formulas in the spreadsheet as shown in the image below.

uREAAAAAAAAALhWpP8f99cvwFDCWhAAAAAASUVOR

P3AgQ4mm5OfkAAAAAElFTkSuQmCC

The obtained result is provided below.

PaTKZqOPtK30SAAAAAAAAAIAHov8BF4h+w4iM6aQ

Ew4OgAAAABJRU5ErkJggg==

.

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