You are considering the purchase of a small apartment complex.

• The purchase price, including acquisition costs, is $1 million.

• Gross potential income in the first year is estimated at $150,000 and vacancy and collection losses are estimated to be 12 percent of gross potential income.

• Operating expenses and capital expenditures are expected to be $36,000 and $2,000, respectively, in year 1.

• The investor will obtain a $750,000 loan at 8 percent annual interest with annual payments for 30 years.

• Additional upfront financing expenses will equal $30,000.

• Assume that 25 percent of the purchase price is payment for land and that the building will be depreciated over 27 years using straight-line depreciation. There is no personal property.

• Your ordinary and capital gain tax rates are 35 and 15 percent, respectively.

Answer the following questions:

a, What will be the Net Operating Income (NOI) for the first year? $Answer 1

b, What will be the mortgage payment for the first year? $Answer 2

c, What will be the interest portion of the mortgage payment for the first year? $Answer 3

d, What will be the amortized financing costs for the first year? $Answer 4

e, What will be the depreciation deduction for the first year? $Answer 5

f, What will be your tax liability for the first year? $Answer 6

g, Estimate the after-tax cash flow for the first year of operations. $Answer 7