You purchased an office building for $10,000,000 5 years ago. It was depreciated on a straight-line basis

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Question:

You purchased an office building for $10,000,000 5 years ago. It was depreciated on a straight-line basis over 39 years. Assume 20% was assigned to land value, assume no real property. Your expectations include: § Each year gross potential income of $1,700,000 § Vacancy & collection losses equal to 12% of PGI § Operating expenses = 40% of EGI, no escalation § Capital expenditures = 5% of EGI, no escalation § Mortgage: 70% LTV @ 6% § Mortgage will be amortized over 30 years § Total up-front financing costs = 2% of the loan amount. Since we are calculating the 5th year cash flow, recall that this component will be the remaining amortization balance. § Ordinary tax rate = 30% § Capital Gains tax = 15% § Depreciation recapture tax = 20% § Sale Proceeds in year 5 = 12,000,000 § Selling expenses = 4% of sale proceeds

1. Calculate the BTCF in year 5

2. Calculate the ATCF in year 5 3. Calculate the ATER in year 5