Reference no: EM131071793

An apartment project that an investor is considering for purchase is projected for purchase is Projected to have NOI of $100,000 during the first year .After that the NOI is projected to increase 3 percent per year .The property can be purchased for $1 million. This price includes a building value of $900,000, which will be depreciated over 27.5 years. The property value is projected to increase 3 percent per year over a five year holding period. The Investor is in 28 percent tax bracket for ordinary income and capital gains. The land can be sold for $100,000 and leased back at the annual payment of $7800 per year for 25 years. The building would be financed for $630,000 at a 10% rate at 15 year term. The amount of equity invested is therefore equal to the purchase price of one million less the amount of loan and sale value of the land, resulting in equity of $270,000. Advice whether the developer can prefer the leasing or not provided his expected income after the tax will be 15%. Show the necessary workings.