Operating cash flow and value of the property

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Consider a commercial property that costs $1 million (90% building, 10% land) with the CAP rate of 10%. Assume that the operating cash flow and value of the property both grow at a rate of 5% per year. Suppose 80% of the property value is financed with a constant payment mortgage of 30 year amortization and 10% interest rate. Assume 31.5 years of straight line depreciation, Income tax rate of 40%, 20% capital gain tax rate and 20% depreciation recapture. Holding period 5 years. (a) What is the equity before-tax IRR? (a) What is the equity after-tax IRR?

Reference no: EM13919822

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