An office building generates the cash flows listed below. The owner is considering spending $55,000 to renovate the building. The renovations will change the cash flows as listed below. Calculate the after-tax internal rate of return on the renovations where the owner plans to sell the building in 3 more years. Should the owner renovate the property if an alternative investment yields 10%?

No renovations Year 1 75,000 2 78,750 3 80,325 NOI Less debt service BTCF 44,671 30,329 44,671 34,079 44,671 35,654 NOI Less interest Depreciation Taxable income Tax ATCF ATCF from sale 75,000 23,575 16,542 34,883 11,860 18,469 78,750 21,824 16,542 40,384 13,731 20,348 80,325 19,923 16,542 43,860 14,912 20,742 274,291 With renovations Year 1 85,000 2 90,950 3 95,498 NOI Less debt service BTCF 44,671 40,329 44,671 46,279 44,671 50,827 NOI Less interest Depreciation Taxable income Tax ATCF ATCF from sale 85,000 23,575 16,542 44,883 15,260 25,069 90,950 21,824 16,542 52,584 17,879 28,400 95,498 19,923 16,542 59,033 20,071 30,755 314,291 No renovations Year 1 75,000 2 78,750 3 80,325 NOI Less debt service BTCF 44,671 30,329 44,671 34,079 44,671 35,654 NOI Less interest Depreciation Taxable income Tax ATCF ATCF from sale 75,000 23,575 16,542 34,883 11,860 18,469 78,750 21,824 16,542 40,384 13,731 20,348 80,325 19,923 16,542 43,860 14,912 20,742 274,291 With renovations Year 1 85,000 2 90,950 3 95,498 NOI Less debt service BTCF 44,671 40,329 44,671 46,279 44,671 50,827 NOI Less interest Depreciation Taxable income Tax ATCF ATCF from sale 85,000 23,575 16,542 44,883 15,260 25,069 90,950 21,824 16,542 52,584 17,879 28,400 95,498 19,923 16,542 59,033 20,071 30,755 314,291