Lonnie Carson purchased Royal Oaks Apartments two years ago. An opportunity has arisen for Carson to purchase a larger apartment project called Royal Palms, but Carson believes that he would have to sell Royal Oaks to have sufficient equity capital to purchase Royal Palms. Carson paid $$2$ million for Royal Oaks two years ago, with the land representing approximately $$200,000$ of that value. A recent appraisal indicated that the property is worth about $$2\mathrm{.}2$ million today. When purchased two years ago, Carson financed the property with a $70$ percent mortgage at $4\mathrm{.}75$ percent interest for $25$ years $($monthly payments$).$ The property is being depreciated over $\frac{271}{2}$ years $(\frac{1}{271}\frac{?}{2}$ per year for simplicity$).$ Effective gross income during the next year is expected to be $$275,000,$ and operating expenses are projected to be $50$ percent of effective gross income. Carson expects the effective gross income to increase $2$ percent per year. The property value is expected to increase at the same $3$ percent annual rate. Carson is currently having to pay $35$ percent tax on ordinary income, $20$ percent on capital gain, and $25$ percent on depreciation recapture which he expects to remain the same in the future. Because Carson has other real estate investments that are now g$$nerating taxable income, he does not expect any tax losses from Royal Oaks to be subject to the passive activity loss limitations$.$ If he sells Royal Oaks, selling expenses would be $6$ percent of the sale price.

Required:

a$.$ How much after$-$tax cash flow $($ATCF $)$ would Carson receive if Royal Oaks was sold today $($exactly two years after he purchased it$)?$

b$.$ What is the projected after$-$tax cash flow $(ATC{F}_0)$ for the next five years if Carson does not sell Royal Oaks?

c$.$ How much after$-$tax cash flow $(ATC{F}_S)$ would Carson receive if he sold Royal Oaks five years from now?

d$.$ Using the results from $($a$)$ through $($c$),$ find the after$-$tax rate of return on equity $($ATIRR $e_e)$ that Carson can expect to earn if he holds Royal Oaks for an additional five years versus selling it today.

e$.$ What is the marginal rate of return $($MRR$)$ if Carson holds the property for one additional year $($if he sells next year versus this year$)?$

Complete this question by entering your answers in the tabs below.

Required $A$

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Required $E$

How much after$-$tax cash flow $)$ would Carson receive if Royal Oaks was sold today $($exactly two years after he purchased it$)?$

After$-$tax cash flow ATCF ${?}_S)$