3.Assume you are considering investing in an apartment building with the following estimated financial characteristics:

§
   Net operating income (NOI) = $64,000

§
   Net operating income growth rate = 4% per year

§
   Tax depreciation = $25,000 per year

§
   Annual interest expense = $32,000

§
   Annual debt service expense = $35,000

§
   Equity investors marginal income tax rate = 36%

§
   Investment horizon = 2 years

§
   Net purchase price = $500,000
   

§
   Equity investment = 30%

§
   Gross sale price = $650,000
   

§
   Cost of sale = $50,000
   

§
   Outstanding mortgage balance at time of sale = $385,000
   

§
   The tax rate on recaptured depreciation = 28%

§
   Long-term capital gains tax rate = 20%

§
   Required after tax return on equity = 6%

The NPV and IRR for this investment are closest to:

A)            $51,977                                        19%

B)            $61,095                                         27%

C)            $99,994                                         47%

D)            $288,905                                       33%

[此贴子已经被作者于2008-5-21 11:42:29编辑过]

答案和详解如下：

3.Assume you are considering investing in an apartment building with the following estimated financial characteristics:

§ Net operating income (NOI) = $64,000

§ Net operating income growth rate = 4% per year

§ Tax depreciation = $25,000 per year

§ Annual interest expense = $32,000

§ Annual debt service expense = $35,000

§ Equity investors marginal income tax rate = 36%

§ Investment horizon = 2 years

§ Net purchase price = $500,000

§ Equity investment = 30%

§ Gross sale price = $650,000

§ Cost of sale = $50,000

§ Outstanding mortgage balance at time of sale = $385,000

§ The tax rate on recaptured depreciation = 28%

§ Long-term capital gains tax rate = 20%

§ Required after tax return on equity = 6%

The NPV and IRR for this investment are closest to:

NPV

IRR

A)      $51,977                                          19%

B)      $61,095                                         27%

C)      $99,994                          47%

D)      $288,905                                       33%

The correct answer was B)

Taxes Payable Computation:
	Year-1	Year-2
NOI (g = 4%)	$64,000	$66,560
Less depreciation	(25,000)	(25,000)
Less interest	(32,000)	(32,000)
Taxable income	7,000	9,560
times tax rate	0.36	0.36
Income taxes payable	$2,520	$3,442
CFAT Computation:
	Year-1	Year-2
NOI (g = 4%)	$64,000	$66,560
Less debt service	(35,000)	(35,000)
Before tax cash flow	$29,000	$31,560
Less taxes payable	(2,520)	(3,442)
CFAT	$26,480	$28,118

Equity reversion after taxes (ERAT) = net selling price – mortgage balance – taxes.

First, compute taxes.

Recaptured depreciation = 2 x $25,000 = $50,000

Tax on recaptured depreciation = $50,000 x 0.28 = $14,000

Total gain on sale = net selling price – adjusted basis

Net selling price = sales price – cost of sale = $650,000 - 50,000 = $600,000

Adjusted basis = cost - accumulated depreciation = $500,000 - 50,000 = $450,000

Total gain = $600,000 - 450,000 = $150,000.

long-term capital gain tax = capital gains tax rate x (total gain - recaptured depreciation)

= 0.20 x (150,000 – 50,000) = 0.20 x 100,000 = $20,000

Total taxes payable = tax on recaptured depreciation + long-term capital gains tax

= $14,000 + $20,000 = $34,000

ERAT = net selling price – mortgage balance – taxes.

= 600,000 - 385,000 - 34,000 = $181,000

Relevant Cash Flows

Year	0	1	2
EI*	-$150,000
CFATt		$26,480	$28,118
ERAT			$181,000

^*Equity investment = 0.30 x 500,000 = $150,000

Using your TI BAII Plus:

[CF] [2nd] [CLR WORK]
-150,000 [+/–] [ENTER] [↓ ]
26,480 [ENTER] [↓] [↓]
209,118 [Enter] (note: CF₂ = 28,118 + 181,000)
[NPV] {6} [ENTER] [↓]
[CPT] = $61,095.41

[IRR] [CPT] = 27.23 percent