P17.2 In the coming year, the Sandbergs expect a potential rental property investment costing

$120 000 to have gross potential rental income of $20 000, vacancy and collection losses equalling 5% of gross income, and operating expenses of $10 000. The mortgage on the property is expected to require annual payments of $8500. The interest portion of the mortgage payments and the depreciation are given below for each of the next three years. The Sandbergs are in the 25% marginal tax bracket.

3LG 2LG Year Interest Depreciation 1 $8300 $4500 2 8200 4500 3 8100 4500 The net operating income is expected to increase by 6% each year beyond the first year.

a. Calculate the net operating income (NOI) for each of the next three years.

b. Calculate the after-tax cash flow (ATCF) for each of the next three years.