On December 31, 1990 Jake Farms invested $500,000 to build a store for rental purposes that was completed at the end of December, 1991. At the beginning of 1992 it was fully rented to a antique store and yearly cash rents for 1992, 1993, 1994 and 1995 were $250,000 for a total of $1,000,000.Rents and expenses were collected and paid at year-end. His cash expenses were $100,000 in each of 1992, 1993, 1994, and 1995 for a total of $400,000. He also used straight-line depreciation (20 year life) for the building, therefore, his yearly depreciation expense was $25,000 for a total of $100,000 for the period.Her book and cash tax rates were 50 % during this period.Jake sold the building for book value in early 1996.The sale of the bookstore was the only transaction for Jake in 1996 (since he sold for book-value, there were no gains or losses, i.e., no taxes).

Jake's brother, Harry bought an antique store on the same day that Jake's store was completed (December 31, 1991).Harry paid $500,000 for his store, the same as Jack.Harry had the exact same revenues and expenses as Jack over the period, 1992,1993,1994 and 1995.Rents and expenses were collected and paid at year-end.However, Harry did not claim any depreciation for tax returns for the periods. Harry's thinking was that a potential buyer would want to look at his book value at the time of sale.On the day that jack sold his store for $400,000, Harry called to say that he had just sold his store that morning for $500,000.

1. What is Jack's full cycle NIAT?
2. What is Jack's full cycle cash flows?
3. What is Harry's full cylce NIAT?
4. What is Harry's full cycle cash flows?
5. Assuming a 12% cost of capital, who did better? Who had a better NPV?