question number 3 (a,b,c)

[The asking price for the property is $l,,; rents are estimated at $2, during the rst year and are expected to grow at 5 percent per year. 1Vacancies and collection losses are expected to be 111% of rents. Operating expenses will be 35 percent of effective gross income. Capital expenditm'es will be 5% of effective gross income. A 3-year xed rate lean for 7!] percent of the pin'chase mice can be obtained at It] percent interest rate. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for seven years and then sold. The investor tells you he would also like to know how tax considerations affect you investment analysis. You determine that the building represent 9!] percent of value and would be depreciated over 2'15 years. The potential investor indicates that he is in the 28 percent tax bracket. Capital gains tax rate is 2% while depreciation recapture tax rate is 25%. a. Write down the cash ows pro forms for year 1 to year 7. b. What is the investors expected before-tax internal rate of return in equity invested (BTIRR)? Show your work. c. What is the investors' expected after-tax internal rate of return on equity investedgATIRR)? Show your work?r