$2.($Extension of problem $1)$ You are still an employee of University Consultants, Ltd$.$ The

investor tells you that she would also like to know how tax considerations affect your investment

analysis. You determined that the building represents $90$ percent of value and would be

depreciated over $39$ years $($use $1/39$ per year$).$ The potential investor indicates that she is in the

$36$ percent tax bracket and has enough passive income from other activities so that any passive

loans from this activity would not be subject to any passive activity loss limitations$.$ Capital

gains from price appreciation will be taxed at $20$ percent and depreciation recapture will be taxed

at $25$ percent.

a$.$ What is the investor$$s expected after tax internal rate of return on equity invested $($ATIRR$)?$

How does this compare with the before tax IRR $($BTIRR$)$ calculated earlier?

b$.$ What is the effective tax rate and before$-$tax equivalent yield?

c$.$ How would you evaluate the tax benefits of this investment?

d$.$ Recalculate the ATIRR in part $($a$)$ under the assumption that the investor cannot deduct any of

the passive losses $($they all become suspended$)$ until the property is sold after five years.