) If you recall (from Problem Set 2), Mr. Arnold Benedict is thinking of buying an apartment complex that is offered for sale by the firm of Getabinder and Flee. The price, $2.25 million, equals the propertys market value. Further, Mr. Benedict can obtain a $1,500,000 loan with terms of interest at 8.5 percent per annum, level annual payments, to amortize the loan over 20 years. There are no points or loan amortization fees anticipated. He has obtained the following estimates from an investment analyst for the BTCF and ATCF (before and after-tax cash flows) for the five-year holding period (as well as the reconstructed income statement for period 0). In addition, he has the BTER and ATER (before and after-tax equity reversion) for the property assuming it is sold at the end of the 5-year holding period. This information is shown below (this is taken from the solution for question #2 from Problem Set 2): Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 PGI 309,600 316,566 323,689 330,972 338,419 346,033 - Vacancy 21,672 22,160 22,658 23,168 23,689 24,222 + Misc Income 7,500 7,669 7,841 8,018 8,198 8,383 EGI 295,428 302,075 308,872 315,822 322,928 330,194 - Operating Exp 45,148 46,164 47,203 48,265 49,351 50,461 - M. Fee 14,771 15,104 15,444 15,791 16,146 16,510 - Property Taxes 76,374 76,374 76,374 80,048 80,048 80,048 NOI 159,135 164,433 169,851 171,718 177,383 183,175 - Debt Service 158,506 158,506 158,506 158,506 158,506 BTCF 5,927 11,345 13,212 18,877 24,669 NOI 164,433 169,851 171,718 177,383 183,175 - Interest 127,500 124,864 122,005 118,902 115,536 - Depreciation 62,730 65,448 65,448 65,448 62,730 - P. Penalty 00000 - Discount Exp 0 0 0 0 0 2 NSP 2,383,607 - Adjusted Basis 1,928,196 Total Gain on Sale 455,411 - Depreciation Recovery 321,804 Capital Gain on Sale 133,607 Passive Income (25,797) (20,461) (15,735) (6,967) 4,909 Pass Through 25,000 25,000 25,000 25,000 25,000 Other Passive 0 0 0 0 0 S. Losses 797 797 797 797 0 Taxable Income (25,000) (20,461) (15,735) (6,967) 4,112 x MTR .40 .40 .40 .40 .40 TAX (10,000) (8,184) (6,294) (2,787) 1,645 BTCF 5,927 11,345 13,212 18,877 24,669 - TAX (10,000) (8,184) (6,294) (2,787) 1,645 ATCF 15,927 19,529 19,506 21,664 23,024 ESP 2,590,877 - SE 207,270 NSP 2,383,607 - UMB 1,316,277 BTER 1,067,330 - TAX 100,492 ATER 966,838 Depreciation Recovery (DR) 321,804 x Dep Recovery Tax Rate (td) .25 Depreciation Recovery Tax (DRT) 80,451 Capital Gains (CG) 133,607 x Capital Gains Tax Rate (tg) .15 Capital Gains Tax (DRT) 20,041 Suspended Losses (SL) 0 x Marginal Tax Rate .40 Suspended Losses Recapture (SLR) 0

Mr. Arnold Benedict has asked you to compute the following investment indicators and further to advise him on whether he should purchase this property.