A real estate investor has the following information on an ofce building: Purchase price is $1,250,000 with acquisition cosm of $60,000 45,000 leasable square feet Initial rent of Slfsq. ft. per year and will increase LG percent per year Vacancy rate of3% ofg-ross rentper year Operating expenses are 42% of effective gross income Three nancing choices: 1. All equity without any nancing; 2. Mortgage with 15% LTV ratio, 15 years, annual payments and 3.5% contract rate; 3. Mortgage with 95% LTV ratio, 15 years, annual payments and 6.11% contract rate; I Expected increase in value is 3.0% per year. Holding period is 15 years, and 5% selling expenses I For simplicity, assuming that no capital improvement over the entire holding period I 75% depreciable I Investor's tax rate is 23%, and capital gain tax rate is 15%. Questions: 1. What is the equity after-tax return (internal rate of return) for each nancing choice? 2. How much percentage of the IRR comes om cash flows and how much from capital gain for each nancing choice? 3. Which nancing choice is the best and why