A company is planning to move to a larger office and is trying to decide if the new office should be owned or leased. Cash flows for owning versus leasing are estimated in the following chart. Assume that the cash flows from operations will remain level over to 10-year holding period. If purchased, the company will invest $325,000 in equity and finance the remainder with a 5% interest-only loan that has a balloon payment due in year 10. The after-tax cash flow from sale of the property at the end of year 10 is expected to be $850,000

1) What is the incremental annual after-tax Cash Flow earned from owning leasing ?

2. Assuming at the end of year 10 the buyer of the building determinate they could landlord, attract a new tenant, lease the building and obtain the following NOI:

Rent	250,000
Operating Expenses	75,000
Real Estate taxes	40,000

NOI 135,000

What is the implied cap rate if the building is sold for $2,250,000?

Own Lease 1,000,000 1,000,000 500,000 500,000 Sales Cost of goods sold 500,000 Gross income Operating expenses: 130,000 60,000 130,000 60,000 120,000 310,000 Business Real estate Lease payments Total operating expenses 310,000 190,000 NOI Mortgage Interest Depreciation Taxable income Tax 100,000 45,000 165,000. 49,500 190,000 57,000 After tax net income 115,500 133,000 Own Lease 1,000,000 1,000,000 500,000 500,000 Sales Cost of goods sold 500,000 Gross income Operating expenses: 130,000 60,000 130,000 60,000 120,000 310,000 Business Real estate Lease payments Total operating expenses 310,000 190,000 NOI Mortgage Interest Depreciation Taxable income Tax 100,000 45,000 165,000. 49,500 190,000 57,000 After tax net income 115,500 133,000