Drexel bought an office building for $$6,500,0005$ 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 $3\mathrm{.}2\%$ annual growth rate

Vacancy & collection losses equal to $12\%$ of PGI

Operating expenses:

O First year insurance of $$145,000$ with a $2\mathrm{.}5\%$ annual growth rate

First year Utilities of $$137,000$ with a $2\%$ annual growth rate

First year Maintenance Expense of $$75,000$ with a $1\mathrm{.}5\%$ annual growth rate

$,$ Capital expenditures $=4\%$ of EGI with a $\mathrm{.}5\%$ annual escalation

$,70\%$ LTV at $6\%$

Mortgage will be amortized over $25$ years

Total up$-$front financing costs:

$2$ points of the loan amount

$$1000$ appraisal fee

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

$27\mathrm{.}5$ years.

Drexel is in the $30\%$ tax bracket on ordinary income

If Drexel 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 $=25\%$