50. Answer the questions below:

Equity 375,000

Loan 875,000

Annual Loan Payment 99,994

Mortgage Balance 850,191 year 5

Year 1 2 3 4 5 6

PGI 200,000 206,000 212,180 218,545 225,102 231,855

Vacancy & Collection Loss 20,000 20,600 21,218 21,855 22,510 23,185

EGI 180,000 185,400 190,962 196,691 202,592 208,669

Expenses 63,000 64,890 66,837 68,842 70,907 73,034

NOI 117,000 120,510 124,125 127,849 131,685 135,635

Debt Service 99,994 99,994 99,994 99,994 99,994 99,994

BTCF 17,006 20,516 24,131 27,855 31,691 35,641

Cash flow from sale in year 5

Sales Price 1,449,093

Sales costs 0

Mortgage Balance 850,191

Before-tax cash flow 598,902

8

BTIRR on Equity

Year 0 1 2 3 4 5

BTCF (375,000) 17,006 20,516 24,131 27,855 630,593

a) What is the investor's expected before-tax internal rate of return on Equity

invested (BTIRR)?

b) What is the first year debt coverage ratio?

c) What is the terminal capitalisation rate/terminal yield?

d) What is the investor's expected after-tax internal rate of return on equity invested

(ATIRR)?

ATIRR on Equity

Year 0 1 2 3 4 5

ATCF (375,000) 19,851 21,933 24,064 26,243 551,495

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

f) What is meant by an effective tax rate? What is the effective tax rate?