A company is planning to move and needs to decide if the new office should be owned or leased. The annual cash flows for owning versus leasing are estimated in the following chart. Assume that the operating cash flows will remain the same over the 10-year holding period. If purchased, the company will invest $325,000 in equity and finance the balance with a 5% interest-only (i.e. non amortizing) loan. The after-tax cash flow from sale of the property, after repayment of the debt, at the end of year 10 is projected to be $850,000. a. What is the incremental annual after-tax cash flow earned from owning vs leasing? b. What is the principal amount of the loan used to acquire the new office? c. Using the above scenario, which includes the sale at end of year 10, what is the incremental rate of return (IRR), from owning vs leasing? Use the after-tax cash flow amounts and information from parts a and b above. Own Lease Sales 1,000,000 1,000,000 Cost of goods sold 500,000 500,000 Gross income 500,000 500,000 Operating expenses: Business 130,000 130,000 Real estate 60,000 60,000 Lease payments - 120,000 Total operating expenses 190,000 310,000 NOI 310,000 190,000 Mortgage Interest 100,000 - Depreciation 45,000 - Taxable income 165,000 190,000 Tax 49,500 57,000 After tax net income 115,500 133,000 d. Assuming at the end of year 10 the buyer of the building determines they could act as a landlord, attract a new tenant, lease the building and obtain the following NOI: What is the implied cap rate if the building is sold for $2,250,000?