You purchased an office building for $10,000,000 5 years ago. It was depreciated on a straight-line basis over 39 years. Assume 20% was assigned to land value, assume no real property.

Your expectations include:

Each year gross potential income of $1,700,000

Vacancy & collection losses equal to 12% of PGI

Operating expenses = 40% of EGI, no escalation

Capital expenditures = 5% of EGI, no escalation

Mortgage: 70% LTV @ 6%

Mortgage will be amortized over 30 years

Total up-front financing costs = 2% of the loan amount. Since we are calculating the 5^th year cash flow, recall that this component will be the remaining amortization balance.

Ordinary tax rate = 30%

Capital Gains tax = 15%

Depreciation recapture tax = 20%

Sale Proceeds in year 5 = 12,000,000

Selling expenses = 4% of sale proceeds

Calculate the BTCF in year 5

Calculate the ATCF in year 5

Calculate the ATER in year 5