bought an office building for $6,500,000 5 years ago with the purpose of renting as a residential area. The assumptions are: - First year potential gross income of $1,200,000 with a 3.2% annual growth rate - Vacancy & collection losses equal to 12% of PGI - Operating expenses: o First year insurance of $145,000 with a 2.5% annual growth rate o First year Utilities of $137,000 with a 2% annual growth rate o First year Maintenance Expense of $75,000 with a 1.5% annual growth rate - Capital expenditures = 4% of EGI with a .5% annual escalation - 70% LTV at 6% - Mortgage will be amortized over 25 years - Total up-front financing costs: o 2 points of the loan amount o $1000 appraisal fee 2. Calculate After Tax Cash Flows including After Tax Equity Reversion taking into account the following assumptions: - 80% of the original cost is allocated to depreciable real property. The cost recovery period is 27.5 years. - The school is in the 30% tax bracket on ordinary income - If the school were to sell the property at the end of year 5, assume the sale price equals the year 6 NOI capitalized at 10% and selling costs equal 5% of the sale price - Capital gains tax rate = 20% - Depreciation recapture tax rate = 25%