A real estate investor has the following information on an office building: - Purchase price is $1,250,000 with acquisition costs of $60,000 - 45,000 leasable square feet - Initial rent of $10/sq. ft. per year and will increase 1.0 percent per year - Vacancy rate of 8% of gross rent per year - Operating expenses are 42% of effective gross income - Three financing choices: 1. All equity without any financing; 2. Mortgage with 75% LTV ratio, 15 years, annual payments and 3.5% contract rate; 3. Mortgage with 95% LTV ratio, 15 years, annual payments and 6.0% contract rate; - Expected increase in value is 3.0\% per year. Holding period is 15 years, and 5% selling expenses - For simplicity, assuming that no capital improvement over the entire holding period - 75% depreciable - Investor's tax rate is 28%, and capital gain tax rate is 15%