QUESTION 92 Suppose an investor is considering a non-residential rental property that has an asking price of $400,000. The land is valued at $175,000. The property has four rental units that are expected to rent for $1,200 each per month for the next five years (PGI each year of $57,600). Vacancy and bad debt allowance is expected to be 5% of potential gross income. Operating expenses are expected to be 16% of effective gross income. A mortgage loan is available for 80% of the purchase price at 8% annual interest with annual payments over 25 years. The investor faces a 28% tax rate and expects to buy this property on January 1, keep it for 5 years (through December 31 five years later, then sell it for $400,000 (less 5% selling expenses). Assume that the taxes from operations facing the investor will be as follows in each of years one through five, respectively: $4,154: $4,185, $4,291: $4,405, $4,596. Also, assume that the ATER for this investor upon sale of the property at the end of the holding period is $83,337. What is the NPV facing this investor at a required return of 15% and what is the Internal Rate of Return $123; 10% $625; 15% $923; 13% $596; 15% QUESTION 92 Suppose an investor is considering a non-residential rental property that has an asking price of $400,000. The land is valued at $175,000. The property has four rental units that are expected to rent for $1,200 each per month for the next five years (PGI each year of $57,600). Vacancy and bad debt allowance is expected to be 5% of potential gross income. Operating expenses are expected to be 16% of effective gross income. A mortgage loan is available for 80% of the purchase price at 8% annual interest with annual payments over 25 years. The investor faces a 28% tax rate and expects to buy this property on January 1, keep it for 5 years (through December 31 five years later, then sell it for $400,000 (less 5% selling expenses). Assume that the taxes from operations facing the investor will be as follows in each of years one through five, respectively: $4,154: $4,185, $4,291: $4,405, $4,596. Also, assume that the ATER for this investor upon sale of the property at the end of the holding period is $83,337. What is the NPV facing this investor at a required return of 15% and what is the Internal Rate of Return $123; 10% $625; 15% $923; 13% $596; 15%