Three years ago you graduated from the real estate program and have been working as a financial analyst in commercial brokerage. You saved up enough money for a down payment and intend to buy a duplex as your first investment property. The property costs $500,000 (split $425,000 for the building and $75,000 for land.) Year 1 NOI is $40,000 and Year 2 NOI will be 41,200. You are able to take out a loan for a bank based on the terms below. Based on your salary, as a single tax filer you fall into the 22% income tax bracket. Because the property is a residential property use a 27.5-year straight-line depreciation. Loan Terms Loan amount = $400,000 Interest rate = 6.50% fixed Amortization = 30 years Monthly Debt Service = $2,528.27

a. How much interest will be paid in Year 2?

b. What is your taxable income in Year 2?

c. What is your After-Tax Cash Flow (ATCF) in Year 2?