Determine the project net cash flows

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You are considering a luxury apartment building project that requires an investment of $12,500,000. You expect the maintenance cost for the apartment building to be $250,000 the first year and $300,000 the second year, after which it will continue to increase by $50,000 in subsequent years. The cost to hire a manager for the building is estimated to be $80,000 per year. After five years of operation, the apartment building can be sold for $14,000,000. Assume a return on investment of 15% after tax. Assume also that your regular tax rate is 35% and the capital gains tax rate is 17.5%. The building has a CCA rate of 4% and will be sold at the end of the fifth year of ownership. If the firm expects to borrow the initial investment ($12,500,000) at 9% over five years (paying back the loan in equal annual payments of $3,213,656), determine the project’s net cash flows.

Reference no: EM131920858

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