B. Problem Statement You've decided to purchase a rental property in Kanata. The financial information on this real estate investment includes 1. 2. 3. 4. 5. Projected ownership of 4 years Rental revenues before taxes of $600,000 at EOY1 increasing thereafter by 3% annually Miscellaneous expenses of $380,000 at EOY1 increasing thereafter by $30,000 annually The current asking price for the property is $800,000 with an expected selling price of $1,000,000 in 4 years The Canadian income tax rate on this type of investment is assumed to be 40% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation) 6. Buildings and equipment are to be depreciated using the DB method with a 15% depreciation rate 7. The half-year rule applies to the depreciation of capital assets 8. Working capital $0 9. You will need a $500,000 loan at a 10% rate with the following repayment schedule . EOY1-20% of the total loan . EOY3 = 25% 10. The annual inflation rate is 2.5% 11. MARRs are: Before-taxes with inflation = 14.0% Before-taxes without inflation (inflation-free) = 10.0% After-taxes with inflation = 7.5% After-taxes without inflation (inflation free)-4.5% . B. Problem Statement You've decided to purchase a rental property in Kanata. The financial information on this real estate investment includes 1. 2. 3. 4. 5. Projected ownership of 4 years Rental revenues before taxes of $600,000 at EOY1 increasing thereafter by 3% annually Miscellaneous expenses of $380,000 at EOY1 increasing thereafter by $30,000 annually The current asking price for the property is $800,000 with an expected selling price of $1,000,000 in 4 years The Canadian income tax rate on this type of investment is assumed to be 40% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation) 6. Buildings and equipment are to be depreciated using the DB method with a 15% depreciation rate 7. The half-year rule applies to the depreciation of capital assets 8. Working capital $0 9. You will need a $500,000 loan at a 10% rate with the following repayment schedule . EOY1-20% of the total loan . EOY3 = 25% 10. The annual inflation rate is 2.5% 11. MARRs are: Before-taxes with inflation = 14.0% Before-taxes without inflation (inflation-free) = 10.0% After-taxes with inflation = 7.5% After-taxes without inflation (inflation free)-4.5%