480 Economic Evaluation and Investment Decision Methode 48-3 You purchase a rental property for $425,000 cash and expect to real- ize revenues of $25.000 per year in years 1 and 2 after management fees with additional expenses of $20,000 per year for property taxes. maintenance, association fees, etc. Assume the investor is an individ- ual with a 28.0% federal tax rate on ordinary income, a 4.0% state income tax rate and that long-term capital gain on appreciation of real estate qualifies for a 15.0% federal tax rate. Gain due to depreci- ation on real estate rental property would qualify for a 25% tax rate by law. If you sold the property for $480,000 after two years net commissions, determine the after-tax cash flows in time zero, year 1 and year 2 and corresponding after-tax DCFROR on this investment. 4 A project manager is evaluating whether it is economical to develop a project requiring expenditures at time 0 of $200,000 for land, $50,000 for product inventory working capital, $580,000 for a busi- ness building, $440,000 for equipment and $75,000 for vehicles. The working capital investment is based on 5,000 units being produced in time zero at a cost of $10.00 per unit with no units sold at that time. Starting in year 1 the manager estimates that production will ramp up to 23,000 units before full production of 25,000 units per year is real ized in years 2, 3 and 4. The year 1 product selling price is targete at $25.00 per unit with this amount escalating 10% per year ther after. Sales in years 1 through 4 are estimated to be uniform