exel bought an office building for $6,500,0005 years ago with the purpose of renting as a residential ea. 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: - First year insurance of $145,000 with a 2.5% annual growth rate - First year Utilities of $137,000 with a 2% annual growth rate - First year Maintenance Expense of $75,000 with a 1.5% 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: - 2 points of the loan amount - \$1000 appraisal fee 1. Build a 25 year amortization table. 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. - 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% 3. Calculate After Tax NPV and IRR. Similar properties use a 6.5% discount rate. - Did Drexel make a good choice by investing in this property? exel bought an office building for $6,500,0005 years ago with the purpose of renting as a residential ea. 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: - First year insurance of $145,000 with a 2.5% annual growth rate - First year Utilities of $137,000 with a 2% annual growth rate - First year Maintenance Expense of $75,000 with a 1.5% 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: - 2 points of the loan amount - \$1000 appraisal fee 1. Build a 25 year amortization table. 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. - 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% 3. Calculate After Tax NPV and IRR. Similar properties use a 6.5% discount rate. - Did Drexel make a good choice by investing in this property