You are an employee of University Consultants, Ltd$.,$ and have been given the following assignment. You are to present an investment analysis of a small retail income$-$producing property for sale to a potential investor. The asking price for the property is $$1,261,000$ rents are estimated at $$161,100$ during the first year and are expected to grow at $2\mathrm{.}5$ percent per year thereafter. The investor tells you she would like to know how tax considerations affect your investment analysis. You determine that the building represents $85$ percent of value and would be depreciated over $39$ years $($use $1/39$ per year, except year $1$ depreciation is also multiplied by $11\mathrm{.}5/12$ to adjust for the mid month convention$).$ The potential investor indicates that she is in the $37$ percent tax bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to any passive activity loss limitations$.$ Capital gains from price appreciation will be taxed at $20$ percent and depreciation recapture will be taxed at $25$ percent. Because the investor works over $750$ hours per year in real estate related activities, she is able to avoid the NIIT $3\mathrm{.}8$ percent surcharge.

Required:

a$.$ What is the investor$$s expected after$-$tax internal rate of return on equity invested $($ATIRR$)?$

b$.$ What is the effective tax rate and before$-$tax equivalent yield?

d$.$ Recalculate the ATIRR in part $($a$)$ under the assumption that the investor cannot deduct any of the passive losses $($they all become suspended$)$ until the property is sold after five years.