An investor is considering a medium-sized apartment complex. The asking price is $1.8 million. Twenty units rent for $475 per month; 20 for $425 per month and 20 for $385 per month with rents expected to increase at 2.5% per year. Vacancy losses are expected to be 7.5%. Operating expenses are expected to be 42% of the EGI. 15% of the cost (asking price) is attributed to land value and, thus, is not depreciable. The purchase can be financed with 20% down and a monthly payment mortgage at 8.25% for 15 years. The investor is in the 30% income tax bracket with a 15% capital gains tax rate, a 25% depreciation recapture tax rate and a 14% required rate of return (discount rate). The property is expected to appreciate at 3% per year and to be sold after 5 years with selling expenses of 8%.

Financing Information: Payment = $13,970 per month; Interest Yr 1 = $116,910; InterestYr2 = $112,563; InterestYr3 = $107,843; InterestYr4 = $102,719; InterestYr5 = $97,156, BalanceEOY5 = $1,138,991.

A. Determine the first year PGI

B. Determine the first year NOI

C. Find the NOIs for years 2 through 5.

D. Determine the net selling price.

E. Determine the first year income taxes

F. Determine the first year AT Cash Flow.

G. Find the AT Cash Flows for years 2 through 5.

H. What are the taxes on sale?

I. What is the AT Equity Reversion?

J. Calculate NPV and IRR