A real estate investor is considering the purchase of a small office building. The

following assumptions are made:

The purchase price is $$775,000.$

The project is a two$-$story office building containing a total of $34,000$

leasable square feet.

Gross rents are expected to be $$10$ per square foot per year.

The vacancy rate is expected to be $15$ percent of potential gross income per

year.

Operating expenses are estimated at $45$ percent of effective gross income.

$75$ percent of the purchase price will be financed with a seven$-$year, monthly

amortized, mortgage at an annual interest rate of $7\mathrm{.}5$ percent. Payments will

be based on a $20-$year amortization schedule. There will be no upfront

financing costs.

Of the total acquisition price, $75$ percent represents depreciable real

property improvements $($no personal property$).$

The investor's ordinary tax rate is $30$ percent and the capital gain tax rate is

$15$ percent.

Estimated capital expenditures are projected to be $$10,000$ per year, but for

simplicity assume these expenditures will not be separately depreciated,

although they will be added to the tax basis.

Required:

Answer the following questions for the first year of rental operations:

a$.$ What is the equity $($cash$)$ down payment required at closing $("$time zero"$)?$

b$.$ What is the annual depreciation deduction? $($Ignore the mid$-$month

convention.$)$

Note: Round your final answer to nearest whole dollar amount.

c$.$ What is the total debt service in year $1?$

Note: Round your answer to $2$ decimal places.

d$.$ What is the estimated net operating income?