EXAM FOUR $-$use this info and fill in the textboxes: Cash Flow Problem Spring $2020$

A property is available for a purchase price of $$850,000.$ This is a desirable property for retail space as it is located on a major highway with a good traffic count. Properties similar to this have appreciated at $4\%$ per year over the past five years.

After consulting with three local banks, you find the best financing option is a $25$ year, monthly payment mortgage loan at $6\mathrm{.}25\%$ interest for $70\%$ of the purchase price. There are no loan discount points.

With the assistance of a local commercial broker, you estimate the following forecast for income and expenses for the first year of ownership of the property.

Income

Rent $($ $$5,750$ per month$)$

$$69,000$

Annual rent increases

$3\mathrm{.}0\%$

Operating Expenses

Maintenance and repairs

Insurance

$$3,500$

Property Taxes $,6,500$

Property Management Services $,2,250$

Total $16,500$

Annual operating expense increase

$3\mathrm{.}0\%$

Annual vacancy rate

$5\mathrm{.}0\%$

Your broker has agreed to sell this property for you in three years at a fee of $6\%.$ Your required rate of return is $10\%.$ The capital gains tax rate is $15\%.$ Your ordinary tax rate is $33\%.$

The estimated value of the building is $$450,000.$ Assume the depreciation value will be the same each year.

Year $1$

Year $2$

Year $3$

AFTER TAX CASH FLOWS

$\backslash$table$[[$Potential Gross Income,,,$],[-$Vacancy Loss,,,$],[$Effective Gross Income,,,$],[-$Operating Expenses,,,$],[$Net Operating Income,,,$],[-$Debt Service,,,$],[$Before Tax Cash Flow,,,$],[-$Income Tax,,,$],[$After Tax Cash Flow,,,$]]$

TAX CALCULATIONS

$\backslash$table$[[$Net Operating Income,,,$],[-$Interest Expense,,,$],[-$Depreciation,,,$],[$Taxable Income,,,$],[$x Ordinary Tax Rate,,,$],[$Income Tax,,,$]]$

AFTER TAX EQUITY REVERSION

$\backslash$table$[[$Gross Selling Price,,,$],[-$Selling Expenses,,,$],[$Net Selling Price,,,$],[-$Mortgage Payoff,,,$],[\backslash$table$[[$Before Tax Equity$],[$Reversion$]],,,],[-$Capital Gain Tax,,,$],[$After Tax Equity Reversion,,,$]]$

CAPITAL GAIN TAX

$\backslash$table$[[$Net Selling Price,,,$],[-$Book Value,,,$],[$Capital Gain,,,$],[$xCapital Gain Tax Rate,,,$],[$Capital Gain Tax,,,$]]$