Consider the following information for the first year of a proposed commercial property acquisition: effective gross income is estimated to be $1.8 million; total outgoings are $490,000; the investor has a 35% marginal tax rate. The asking price is $12.5 million. The property is going to be acquired with a 75% loan to value ratio mortgage, interest-only with a 10-year term and 6% p.a. interest rate. Depreciation is straight-line over 39 years. It is estimated that the depreciation expense is $320,000 in year 1.

1. What is the net income of the property in Year 1?

2 .Using an appropriate financial ratio, discuss the chances of loan approval for this investment.

3 .Determine the first-year equity after-tax cash flow (EATCF) if there are no capital improvement expenditures or reversion items in Year 1.