答案和详解如下：
1．A property was purchased for $550,000 and sold after six years for $850,000. Costs associated with the sale were $65,000 and the tax depreciation in each year was $20,000. At the time of the sale, $320,000 remained outstanding on the mortgage. The tax rate on recaptured depreciation is 28 percent and the long-term capital gains tax rate is 20 percent. The equity reversion after taxes for this property is closest to:
A) $384,400.
B) $365,600.
C) $449,400.
D) $569,200.
The correct answer was A)
Equity reversion after taxes (ERAT) = net selling price – mortgage balance – taxes.
First, compute taxes.
Recaptured depreciation = 6 x $20,000 = $120,000
Tax on recaptured depreciation = $120,000 ´ 0.28 = $33,600
Total gain on sale = net selling price – adjusted basis
Net selling price = sales price – cost of sale= $850,000 - 65,000 = $785,000
Adjusted basis = cost - accumulated depreciatio n= $550,000 - 120,000 = $430,000
Total gain = $785,000 - 430,000 = $355,000.
long-term capital gains tax
= capital gains tax rate x (total gain - recaptured depreciation) = 0.20 x (355,000 – 120,000) = 0.20 x 235,000 = $47,000
Total taxes payable
= tax on recaptured depreciation + tax on long-term capital gains = $33,600 + $47,000 = $80,600
ERAT = net selling price – mortgage balance – taxes = 785,000 - 320,000 - 80,600 = $384,400
2.Suppose you are evaluating an investment opportunity in an office building for which you have estimated the following financial characteristics:
§ First year net operating income (NOI) = $75,000.
§ Growth rate in net operating income = 5 percent per year.
§ Tax depreciation = $10,000 per year.
§ Annual interest expense = $9,000.
§ Annual total debt service expense = $12,000.
§ Equity investors marginal income tax rate = 36 percent.
§ Investment horizon = four years.
The cash flows after taxes for years one and four are closest to:
A) CFAT1 = $51,480 and CFAT4 = $50,766.
B) CFAT1 = $42,840 and CFAT4 = $50,406.
C) CFAT1 = $40,600 and CFAT4 = $47,693.
D) CFAT = $42,840 and CFAT4 = $47,760.
The correct answer was B)
Taxes Payable Computation: | | | | |
| Year-1 | Year-2 | Year-3 | Year-4 |
NOI (g = 5%) | $75,000 | $78,750 | $82,688 | $86,822 |
Less depreciation | (10,000) | (10,000) | (10,000) | (10,000) |
Less interest | (9,000) | (9,000) | (9,000) | (9,000) |
Taxable income | $56,000 | $59,750 | $63,688 | $67,822 |
times tax rate | €0.36 | 0.36 | 0.36 | 0.36 |
Income taxes payable | $20,160 | $21,510 | $22,928 | $24,416 |
| | | | |
CFATt Computation: | | | | |
| Year-1 | Year-2 | Year-3 | Year-3 |
NOI (g = 5%) | $75,000 | $78,750 | $82,688 | $86,822 |
Less debt service | (12,000) | (12,000) | (12,000) | (12,000) |
Before tax cash flow | $63,000 | $66,750 | $70,688 | $74,822 |
Less taxes payable | (20,160) | (21,510) | (22,928) | (24,416) |
CFAT | $42,840 | $45,240 | $47,760 | $50,406 |
1．A property was purchased for $550,000 and sold after six years for $850,000. Costs associated with the sale were $65,000 and the tax depreciation in each year was $20,000. At the time of the sale, $320,000 remained outstanding on the mortgage. The tax rate on recaptured depreciation is 28 percent and the long-term capital gains tax rate is 20 percent. The equity reversion after taxes for this property is closest to:
A) $384,400.
B) $365,600.
C) $449,400.
D) $569,200.
2.Suppose you are evaluating an investment opportunity in an office building for which you have estimated the following financial characteristics:
§ First year net operating income (NOI) = $75,000.
§ Growth rate in net operating income = 5 percent per year.
§ Tax depreciation = $10,000 per year.
§ Annual interest expense = $9,000.
§ Annual total debt service expense = $12,000.
§ Equity investors marginal income tax rate = 36 percent.
§ Investment horizon = four years.
The cash flows after taxes for years one and four are closest to:
A) CFAT1 = $51,480 and CFAT4 = $50,766.
B) CFAT1 = $42,840 and CFAT4 = $50,406.
C) CFAT1 = $40,600 and CFAT4 = $47,693.
D) CFAT = $42,840 and CFAT4 = $47,760.
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