You are considering an investment into an income producing property (lets call it Property A). The acquisition price is $227,500 and you can finance it with a 70% loan to value ratio mortgage with a 6% annual interest rate. This will be a fixed-rate mortgage with constant monthly The broker provides you with the following (incomplete) information about Property A. You determine that you will make this investment if it yields an after-tax internal rate of return on equity which is greater than 12%. You determine that you will hold Property A for three years and then sell at the end of year 3. The annual depreciation deduction you can claim on the property is $5,833.

You do not expect to make any capital expenditures.

The incomplete pro-forma for Property A appears below. Incomplete sections of the pro-forma are shaded grey.

Loan Terms

Acquisition Price	$227,500	(100% of the acquisition price attributed to the structure)
Loan to value ratio	70%
Loan Amount	$159,250
Interest Rate	6%	Annual Rate; Monthly compounding
Term to maturity; Amortization Term	30	years

Additional Assumptions

Annual Depreciation Deduction	$5,833	(Assuming Straight line depreciation 39 years)
Ordinary Tax Rate	30%
Going-out capitalization rate	10.25%

Year 1 2 3

Effective Gross Income	$35,000	$36,050	$37,132
less: Operating Expenditure	$ (12,250)	$(12,618)	$(12,996)
less: Capital Expenditure	$0	$0	$0
Net Operating Income	$22,750	$23,433	$24,135
less: Debt Service	$ (11,457)	$(11,457)	$(11,457)
Before Tax Cash Flow (Operations)	$11,293	$11,975	$12,678
less: Tax Liability	(A)	$(2,465)	$(2,715)
After Tax Cash Flow (Operations)	(B)	$9,510	$9,963
After Tax Cash from Sale			$82,888
Total After Tax Cash Flow	(C)	$9,510	$92,852

A new tax law is expected to pass which allows the property to be depreciated over 15 years instead of 39 years (i.e., the cost recovery period is reduced by 24 years).

Without doing any additional computations, choose the correct option below:

Group of answer choices

A) This will increase the after-tax internal rate of return on property A.

B) This will decrease the after-tax internal rate of return on property A.

C) The change in the after-tax internal rate of return is ambiguous.

D) There is no change in the after-tax internal rate of return.