Q1. If rent grows at 5% starting in year 2, what is the PGI in year 5? Q2. Based on the new Operating Expenses, what is the NOI in year 1? Q3. If the land is 20% of the asking price, what is the value of the land? Q4. The new annual depreciation (a non-cash expense for tax purposes) is what? Q5. Based on the income tax rate of 37%, what is the After Tax Cash Flow from Operations in Year 1? Q6. What is the CRA Recapture Tax? Q7. What is the Capital Gain Tax based on a 20% tax rate? (OE) NOI (DS)* BTCF (Dep'n) Mtg principal (Tax) (28%) ATCF Q8. What is the After Tax Cash Flow on Reversion? Q9. What is the NPV for this investment if the required return is 18%? Q10. Based on the NPV or IRR decision criteria, would you invest in this property? FA Chapter 19 RE Investment Analysis - Study Exercise Number 5 (p. 412) CF from operations Input: Depreciable Life in yrs (NR=39.0, R=27.5) is. 27.5 Cash flow on reversion Year (Cash Outlay) PGI (VCL) EGI Zero (1,500,000) One Two Three Four Five Five 0 864,000 (51,840) 0 0 0 Cost Basis 3,500,000 812,160 TI (259,891) 552,269 (264,261) 288,008 (109,091) 25,640 204.557 898.560 (53.914) 844,646 (270,287) 574,360 (264,261) 310,099 (109,091) 28,892 229,900 934,502 (56,070) 878,432 (281,098) 597,334 (264.261) 333,073 (109,091) 32,557 256.539 971,882 1,010,758 (Acc. dep'n) (545.455) (58,313) (60,645) Book value 2,954,545 913,570 (292,342) 621,227 (264,261) 356,966 (109,091) 950,112 (304,036) Gross selling price 4,400,000 646,076 (264,261) 381,815 (Selling expenses) ** Net selling price (Book value) (220,000) 4,180,000 (2.954.545) (109,091) Gain on Sale (2 parts) 1,225,455 36,685 41,338 284.560 314.062 (1) Acc. Dep'n 545.455 (57,276) (64.372) (71.831) (79,677) (87.937) CRA Recapture tax (25%) 136,364 (1,500,000) 230,732 245,727 261,242 277,289 293,878 ATCF on Rev. 2,106,749 (2) Capital Gain 680,000 Total ATCF (1,500,000) 230.732 245,727 261.242 277,289 2,400,627 Capital Gain Tax (15%) 102,000 Total Taxes (1)+(2) 238,364 NPV = @ IRR= $223,372 18.0% 22.24% Net sale proceeds 4,180,000 (Total tax due on sale) (238,364) Assume as given / shown Assume selling expenses are 5% of sales price. (Mtg payoff, OLB) ATCF on Rev. (1,834,887) 2,106,749