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Question 1 (35 points) Comprehensive Pro Forma and Analysis An investor is considering purchasing an apartment building with the following characteristics: Purchase Price: $3,000,000, of which 40% is allocated to the land and 60% to the building, which is a Class 1 (4% CCA) asset. The purchase would be financed by a $1,800,000 loan at j2 = 7% with a 15- year amortization, 3-year term, and monthly payments, rounded up to the next higher dollar. The remainder would be paid in cash. The investor's projections for the building for the upcoming year of operation are as follows: The investor's projections for the building for the upcoming year of operation are as follows: - Gross Potential Income: $420,000 increasing at 3% per year - Vacancy Rate: 3% of Gross Potential Income - Operating Expenss: $170,000 increasing at 3.5% per year The investor has a 50% marginal tax rate and intends to sell the building at the end of the third year. The allocation to land and building is expected to remain at 40% and 60%, respectively. The property value (and and building) is expected to increase 4.5% per year each year of the 3-year holding period. The property value (land and building) is expected to increase 4.5% per year each year of the 3-year holding period. A commission of 8% of the gross sale price is required at the time of sale. Where appropriate, present your answers in table format. (a) Construct an after-tax cash flow pro forma for the intended holding period. (15 Marks) (b) Calculate the after-tax equity reversion given that 50% of the capital gain is taxable and the only closing costs are the commission. (10 Marks) (c) Calculate the overall capitalization rate (OCR) for Year 1. (2 Marks) Question 1 (35 points) Comprehensive Pro Forma and Analysis An investor is considering purchasing an apartment building with the following characteristics: Purchase Price: $3,000,000, of which 40% is allocated to the land and 60% to the building, which is a Class 1 (4% CCA) asset. The purchase would be financed by a $1,800,000 loan at j2 = 7% with a 15- year amortization, 3-year term, and monthly payments, rounded up to the next higher dollar. The remainder would be paid in cash. The investor's projections for the building for the upcoming year of operation are as follows: The investor's projections for the building for the upcoming year of operation are as follows: - Gross Potential Income: $420,000 increasing at 3% per year - Vacancy Rate: 3% of Gross Potential Income - Operating Expenss: $170,000 increasing at 3.5% per year The investor has a 50% marginal tax rate and intends to sell the building at the end of the third year. The allocation to land and building is expected to remain at 40% and 60%, respectively. The property value (and and building) is expected to increase 4.5% per year each year of the 3-year holding period. The property value (land and building) is expected to increase 4.5% per year each year of the 3-year holding period. A commission of 8% of the gross sale price is required at the time of sale. Where appropriate, present your answers in table format. (a) Construct an after-tax cash flow pro forma for the intended holding period. (15 Marks) (b) Calculate the after-tax equity reversion given that 50% of the capital gain is taxable and the only closing costs are the commission. (10 Marks) (c) Calculate the overall capitalization rate (OCR) for Year 1. (2 Marks)