You have been given the following assignment. You are to present an investment analysis of a new small residential income-producing property for sale to a potential investor. The asking price for the property is $1,350,000; rents are estimated at $250,000 during the first year and are expected to grow at 3% per year thereafter. Vacancies and collection losses are expected to be 10% of rents. Outgoings (operating expenses) will be 35% of effective gross income. A fully amortizing 70% loan can be obtained at 11% for 30 years. The property is expected to appreciate in value at 3% per year and is expected to be owned for 5 years and then sold.

a) What is the investor's expected before-tax internal rate on equity invested (BTIRR)?

b) What is the first-year debt coverage ratio?

c) What is the terminal yield?

d) What is the NPV using a 14% discount rate? What does this mean?

e) What is the investor's expected after-tax internal rate of return on equity invested (ATIRR) if he is in the 30% tax bracket and the depreciation is estimated at $30,000 per annum over the next 5 years?

f) Discuss the tax implication.