This is one continuous problem with 10 questions and an extra credit opportunity. The extra credit should be submitted as an excel spreadsheet showing all of your work, by 9AM tomorrow morning. Label it: YOUR LAST NAME space Your First Initial space QUIZ ONE EC. Improper labels will be rejected.

You purchased a property for $1,000,000. Twenty percent of the purchase price represents land. The depreciable life of the asset is 40 years. The cap rate at purchase was 5%. NOI increases 10% per year. The cap rate at sale in five years is 4%. Fifty percent of the purchase price is debt. The debt has an interest rate of 4% per annum and you must repay $25,000 in principal at the end of each year.

The balance of the purchase price, and initial cash to operate the business come from the sale of six partnership units at $100,000. The tax rate on income is 35%, on Recapture is 25% and on Capital Gains is 20%. Assume all cash is distributed to investors in the year in which it is earned.

1. What is the net income in year one?
   1. 10,000
   2. 30,000
   3. 40,000
   4. 50,000
2. How much recapture tax is due on sale if any?
   1. 100,000
   2. 125,000
   3. 25,000
   4. 0
3. How much capital gain tax is due on sale if any?
   1. 8,800,000
   2. 92,820
   3. 292,820
   4. 0