You are considering the purchase of an office building for $4,000,000. You anticipate $750,000 first-year gross potential income; vacancy and collection loss equal to 10% of gross potential income; miscellaneous income equal to 2% of PGI; operating expenses equal to 40% of effective gross income; and capital expenditures equal to 5% of EGI. You have arranged a mortgage loan of $2,800,000 with an annual interest rate of 6%. The loan will be amortized over 20 years with a monthly payment of $20,060. Total upfront financing costs (closing costs) will equal 2% of the loan amount.

Fill out the cash-flow analysis below and answer/calculate the following questions.

Item Amount________ Potential Gross Income (PGI): $_____________ Less Vacancy and Collection Loss (VC): ______________ Add Miscellaneous Income: ______________ = Effective Gross Income (EGI): ______________ Less Operating Expenses (OE): ______________ Less Capital Expenditures (CAPX): ______________ = Net Operating Income (NOI): ______________ Less Debt Service (DS): ______________ = Before-Tax Cash Flow (BTCF): $_____________

1. What is the required equity investment?

2. Calculate the Equity Dividend Rate (EDR):