John presently owns an office building, which is 30 years old, and is considering renovating it. Assume that if John does the renovation, he will be able to obtain a new loan that is equal to the balance of the existing loan plus 75% of the renovation costs. Assume a five-year holding period. Below is the information about the property and Johns estimation if he does the renovation.

CURRENT				IF RENOVATED
Purchase Price		1,000,000		Renovation Cost		400,000
Building Value		800,000		Initial Increase in NOI (year 4)		20.00%
Land Value		200,000		Annual Increase in NOI		3.00%
Loan-to-value ratio		75.00%		Resale Value after holding 5 years		1,523,000
Interest		9.00%		Selling Expenses		3.00%	of sale price
Term		30	years	New Loan:
Payments per year		12		Interest Rate		11.00%
Years since Purchased		3		Term		30 years
Current NOI (year 4)		90,000		Payments per year		12
Projected Increase in NOI		2.00%	per year
Resale Value Today		1,050,000
Depreciable Life		39	years
Ordinary income tax rate		28.00%
Price appreciation tax rate		28.00%
Depreciation recapture tax rate		28.00%

What is the annual loan payment if John does not renovate the property?

a. $60,598

b.$25,000

c. $72,416

d. $32,700