1. Find the Annual Depreciation at EOY2

2. Find the Interest on Loan at EOY3

3. Find the Taxable Operating Income at EOY4

4. Find the Taxes on Operating Income at EOY2

Projected ownership of 4 years. Rental revenues before taxes of $600,000 at EOY1 increasing annually thereafter by 3.0%. Annual expenses before taxes of $370,000 at EOY1 increasing annually thereafter by 2.0%. Today's asking price for the building is $1,500,000 with an expected selling price of $2,000,000 in 4 years. The Canadian income tax rate on this type of investment is assumed to be 40% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation). Buildings and equipment are to be depreciated using the DB method with a 15% depreciation rate. The half-year rule applies to the depreciation of capital assets. Working capital = $0. You will need a $1,000,000 loan at a 10% rate to finance, in part, your purchase and the required working capital. The loan is to be repaid as follows: EOY1 = 10% of the total loan EOY2 = 25% EOY3 = 35% EOY4 = 30% The annual inflation rate is 4.0%. MARRs are: Before-taxes with inflation = 16.0% Before-taxes without inflation (inflation-free) = 12.0% After-taxes with inflation = 10.0% After-taxes without inflation (inflation free) = 6.0% BTCF = Before-Tax Cash Flows; ATCF = After-Tax Cash Flows CFOE = Cash Flows on Owner Equity Projected ownership of 4 years. Rental revenues before taxes of $600,000 at EOY1 increasing annually thereafter by 3.0%. Annual expenses before taxes of $370,000 at EOY1 increasing annually thereafter by 2.0%. Today's asking price for the building is $1,500,000 with an expected selling price of $2,000,000 in 4 years. The Canadian income tax rate on this type of investment is assumed to be 40% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation). Buildings and equipment are to be depreciated using the DB method with a 15% depreciation rate. The half-year rule applies to the depreciation of capital assets. Working capital = $0. You will need a $1,000,000 loan at a 10% rate to finance, in part, your purchase and the required working capital. The loan is to be repaid as follows: EOY1 = 10% of the total loan EOY2 = 25% EOY3 = 35% EOY4 = 30% The annual inflation rate is 4.0%. MARRs are: Before-taxes with inflation = 16.0% Before-taxes without inflation (inflation-free) = 12.0% After-taxes with inflation = 10.0% After-taxes without inflation (inflation free) = 6.0% BTCF = Before-Tax Cash Flows; ATCF = After-Tax Cash Flows CFOE = Cash Flows on Owner Equity