$4.(11$ points$)$ The asking price for the property is $$1\mathrm{.}000,000$; rents are estimated at $$200,000$ during the first year and are expected to grow at $5$ percent per year. Vacancies and collection losses are expected to be $10$ of rents. Operating expenses will he $35$ peroent of effective gross income. Capital expenditures will be $5\%$ of effective gross income. A $30$ year fixed rate loan for $70$ percent of the purchase price can be obtained at $10$ percent interest rate. The property is expeeted to appreciate at $3$ pereent per year and is expected to be owned for seven years and then sold. The sale commission is $6$ percent.

$7$

The investor tells you he would also like to know how tax considerations affect your investment analysis. You determine that the building represent $90$ percent of value and would be depreciated over $27\mathrm{.}5$ years. The potential investor indicates that be is in the $28$ percent tax bracket. Capital gains tax rate is $20\%$ while depreciation recapture tax rate is $25\%.$

a$.$ Write down $($not print excel$)$ the cash flows pro forma for year I to year $7$ using the approach in this class. $(7$ points$)$

b$.$ What is the investors expected before$-$lax internal rate of retum in equity invested $($BTIRR$)?$ Show your work. $(2$ points$)$

c$.$ What is the investors' expected after$-$tax internal rate of return on equity invested$($ATIRR$)?$ Show your work? $(2$ points$)$