You are the tax director for Acme Real Estate, Inc. The leasing manager, Wyle E. Coyote, wants to discuss the tax aspects of leasing a property in Acme's portfolio. The property is a 20,000 square foot single story office building located in Road Runner Center. Road Runner Center is located in a tight real estate market. The property is fairly new in comparison to other comparable properties in the local market, but it is not currently leased. A potential tenant, Beep-Beep, LLC, is interested in leasing the property. Typically these properties are leased on a triple net basis (i.e., the tenant pays for property taxes, insurance and repairs on the property). A comparable property was just leased for a monthly rate of $2.50 per square foot. Beep-Beep is interested in signing a fifteen year lease at that rate, but they want Acme to pay for $500,000 of tenant improvements. Alternatively, ACME could lease the property to Beep-Beep for a monthly rate of $2.29 per square foot for a fifteen year term without paying for any tenant improvements. Mr. Coyote wants to know Acme's after tax cash flow for both alternatives and would like a recommendation as to which alternative is best. Assume that Acme is in a 40% tax bracket for all years. Ignore present value considerations. Assume the same facts as above, except that Mr. Coyote thinks that the property will be sold in two years at a 6% capitalization rate.

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AfterTax Cash Flow Analysis for Acme Real Estate Scenario 1 Lease with tenant improvements 250sq ft ... View the full answer