7. Ms. Ross is considering investing in an office building. If she buys the building, the price will be $800,000 of which $120,000 represents the value of the land. Acquisition costs are estimated to be 5% of the purchase price. The building will be depreciated over 39 years. Ms. Ross will purchase the property with a $650,000, 20-year, 8% interest-only loan with a 1% origination fee and 2 points. At the end of the expected holding period of 5 years, the selling price of the building is expected to be $950,000. Selling expenses are expected to be 3.5% of the expected selling price. Ms. Ross is in the 33% tax bracket and her required after-tax rate of return is 7%. The depreciation recapture tax rate is 25% and the capital gains tax rate is 15%.

a) What is the equity investment?

b) Suppose the after-tax cash flows from operations for years 1-5 are:

Year	1	2	3	4	5
ATCFoperations	$10,900	11,370	11,855	12,235	12,617
ATCFsale	$0	0	0	0	$232,352

Calculate the net present value (NPV) and the internal rate of return (IRR). Does this project meet Ms. Rosss objectives?