Answer All the questions below.

1.A real estate investment with an initial cost of Sh.45 was sold after five years at a price of Sh.75 million.The cost associated with the sale was Sh.5million,and the tax depriciation in each year was Sh.2million.At the time of the sale,the outstanding mortgage balance will be Sh.34million.The tax rate on recaptured depreciation and long-term capital gain tax rate is 30%.

Required:

The equity reversion after tax for this real estate investment.

2. A single tenant office building was leased six years ago at a price of Sh.2million per year.The next rent review occurs in two years' time.The Estimated Rental Value(ERV) in two years based on the current market conditions is Sh.3million per year.

The all-risk yield cap rate for conparable fully-let property is 7%.Due to lower risk,the appropriate rate to discount the term rate is 6%.

Required:

The Value of the office building

3.

d) An alternative investment firm is considering equity investments in real estate. The two options under consideration are as illustrated below: Option 1: Investment in a public real estate investment trust (REIT). Option 2: Equity investment in public real estate operating company (REOC). Option 1: REIT Recent net operating income (NOI) Sh. 140 million Non-cash rents Sh.5 million Full year adjustment for acquisition Sh.5 million Other assets Sh.50 million Total liabilities Sh.300 million Current market price per share Sh. 1252.. Vacancy rates of 10% are considered typical in this sector. 3. The current tax rate is Sh. 18.50 per Sh.1, 900 of assessed valuation. The property is assessed for tax purpose at Sh.4 million. Neither the tax rate nor assessed value is expected to change in the nextone year.. 4. The landlord is responsible for all real estate taxes, exterior maintenance, comprehensive insurance, management expenses and or repairs or replacements. 5. The following cost elements are expected to increase at a rate of 3 % per year for the foreseeable future. 2016 Cost Elements . Maintenance General maintenance costs are Sh. 500 per month Insurance Annual premium for comprehensive insurance is Sh. 10,000 . Management Annual management expenses are Sh. 25,000 Repairs Allowance for repairs and replacement is Sh. 15, 000 per year. 6. Recent sale prices and projected net income for properties comparable to Furaha Property Investment Limited are: Property A Property B Property C Price (Sh.) 3,525,000 4,875,000 2,350,000 Net operating income 246,750 438,750 183,060 7. Fatuma Juma intends to consider an alternative capitalisation rate using a band of investment technique. If the investment is made, Furaha Property Investment Limited will pay 20% in cash and finance the remainder over a period of 30 years. Given the prevailing terms of 7% a - year on 30 year mortgage with monthly payments, the mortgage constant will be 0.0719. 8. Fatuma Juma believes that the equity capitalization rate is 10%. Required: i . Furaha Property Investment Limited's net operating income (NOI) for year 2017. ii. The investment value of the property using the direct capitalisation approach. The overall capitalisation rate using the band of investment technique