Suppose that you are considering an investment in an apartment building. The specifics are: - The building is eight years old, has a 90 percent occupancy rate, and has an expected useful life of 22 years. Assume that this occupancy rate is expected to continue for the life of the building. - There are 90 2-bedroom units, 110 1-bedroom units, and 70 studios. - The 2-bedroom units rent for $3500 per month, the 1-bedroom units for $2000 per month, and the studios for $1500 per month. - Current rent control laws will prevent the rents from ever being raised. - The estimated annual maintenance cost for the building is $1500000 per year (this is independent of the number of apartments rented). - There is an additional estimated maintenance cost at $175 per unit per month, when each unit is rented. - There will be no salvage value to the building in 22 years, but it is estimated that it will cost 3 million dollars at that time to demolish the building as will be required in the purchase contract. (You are not purchasing the land. You will have a 22-year lease of the land, which is paid for in the purchase of the building.) - The asking price of the building is $35 million. - The tax-rate is 21%, and assume the building will be fully depreciated over its useful life. - The WACC is 9%. Develop the pro-forma income statement, compute the operating cash flows and NPV. Calculate the after-tax IRR and before-tax IRR.

7.58%; 9.6%

6.05%; 7.66%

12.17%; 15.41%

10.64%; 13.47%

9.11%; 11.53%