CF from operations Input: Depreciable Life in yrs (NR=39.0, R=27.5) is ... 27.5 Cash flow on reversion Year (Cash Outlay) PGI (VCL) EGI (OE) Zero (1,500,000) One Two Three Four Five 0 0 0 0 0 Cost Basis 864,000 898,560 934,502 971,882 1,010,758 (Acc. dep'n) Five 3,500,000 (545,455) (51,840) (53,914) (56,070) (58,313) (60,645) Book value 2,954,545 812,160 844,646 878,432 913,570 950,112 (259,891) (270.287) NOI (DS)* BTCF 552,269 (264,261) 288,008 574,360 (264,261) 310,099 (Dep'n) (109,091) (109,091) (281,098) 597,334 (264,261) 333,073 (109,091) (292,342) 621,227 (264,261) 356,966 (304,036) Gross selling price 646,076 (Selling expenses) (264,261) Net selling price 381,815 (Book value) 4,400,000 ** (220,000) 4,180,000 (2,954,545) (109,091) (109,091) Gain on Sale (2 parts) 1,225,455 Mtg principal 25,640 28.892 32,557 36,685 41,338 204,557 229,900 256,539 284,560 314,062 (1) Acc. Dep'n 545.455 (Tax) (28%) (57,276) (64,372) (71,831) (79,677) (87,937) CRA Recapture tax (25%) 136,364 ATCF (1,500,000) 230,732 245,727 261,242 277,289 293,878 ATCF on Rev. 2,106,749 (2) Capital Gain 680,000 Total ATCF (1,500,000) 230,732 245,727 261,242 277,289 2,400,627 Capital Gain Tax (15%) Total Taxes (1)+(2) 102,000 238,364 NPV = $223,372 @ IRR = 18.0% 22.24% Net sale proceeds 4,180,000 (Total tax due on sale) (238,364) (Mtg payoff, OLB) (1,834,887) * Assume as given / shown **Assume selling expenses are 5% of sales price. ATCF on Rev. 2,106,749 Assignment: Calculate the relevant cash fows for this investment and apply the NPV & IRR decision rules to decide whether to pursue this project Assume: a. The asking price for this apartment building is $3.5 million, with the land valued at 20% of the asking price. b. Rents grow 5% per year starting in year two. Everything else is the same. c. Vacancy and bad debt allowance is 5% of PGI. d. Operating expenses are expected to be 40% of EGI each year. e. The estimated value of the property, not including selling expenses, will be $4.0 million at the end of a five-year investment horizon. f. Assume the same mortgage terms at in the original study exercise. You can treat the Debt Service (DS), and Principal as given / shown. g. The CRA Recapture tax is 25%, income tax is 37%, and the capital gain tax rate is 20%. The required return is 18%