An investor is considering buying a residential income property for $500,000, and holding it for three years.
Question:
An investor is considering buying a residential income property for $500,000, and holding it for three years. The expected equity cash flows after tax (ATCF) are:
Year 1 = $16,000
Year 2 = $14,000
Year 3 = $12,000
A 75% of value mortgage is available; the remaining balance, after 3 years, will be $365,501. Total depreciation to be taken over the holding period will equal $43,636 on improvements with a beginning basis of $400,000. The investor is in the 28% capital gain tax bracket while the depreciation recapture rate is 25% in this period, and desires a 12% after tax return on the investment. The property is expected to sell for $575,000; there will be a 6% sales commission. Based on tax laws assumed here, what are the total CASH proceeds from the sale?
$146,928
$152,750
$154,249
$151,441
$158,245
Engineering Economic Analysis
ISBN: 9780195168075
9th Edition
Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle