B. Problem Statement You are planning to purchase a small apartment building. The financial information on this potential investment includes 1. The projected ownership is 4 years 2. Rental revenues before taxes of $750,000 at end-of-year 1 (EOY1) growing thereafter at an annual rate of 1.50%. 3. Annual expenses of $450,000 at EOY1 growing thereafter at an annual rate of 3% 4. Today's asking price for the building is $900,000 with an expected selling price of $1,100,000 in 4 years. 5. The Canadian income tax rate on this type of investment is assumed to be 50% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation) 6. Buildings and equipment are to be depreciated using the DB method with a 20% depreciation rate 7. The half-year rule applies to the depreciation of the building 8. Working capital $0 9. You will need a $650,000 loan at a 10% rate which will be repaid as follows EOY1 15% of the total loan EOY2 25% EOY3 30% EO 30% 10. The annual inflation rate is 2.5% 11. MARRs are: Before-taxes with inflation 20% Before taxes without inflation (inflation-free) 17% After-taxes with inflation -10% After-taxes without inflation (inflation free) 7% B. Problem Statement You are planning to purchase a small apartment building. The financial information on this potential investment includes 1. The projected ownership is 4 years 2. Rental revenues before taxes of $750,000 at end-of-year 1 (EOY1) growing thereafter at an annual rate of 1.50%. 3. Annual expenses of $450,000 at EOY1 growing thereafter at an annual rate of 3% 4. Today's asking price for the building is $900,000 with an expected selling price of $1,100,000 in 4 years. 5. The Canadian income tax rate on this type of investment is assumed to be 50% (on profits before taxes, capital gains or losses, terminal losses and on recaptured depreciation) 6. Buildings and equipment are to be depreciated using the DB method with a 20% depreciation rate 7. The half-year rule applies to the depreciation of the building 8. Working capital $0 9. You will need a $650,000 loan at a 10% rate which will be repaid as follows EOY1 15% of the total loan EOY2 25% EOY3 30% EO 30% 10. The annual inflation rate is 2.5% 11. MARRs are: Before-taxes with inflation 20% Before taxes without inflation (inflation-free) 17% After-taxes with inflation -10% After-taxes without inflation (inflation free) 7%