Solve for the IRR on an unleveraged

Assignment Help Financial Management

Reference no: EM132041949

Assumptions

1. Potential Gross Income – Year 1 ? 96,000; Year 2 – increases 5%

2. Vacancy and Collection loss 10% throughout holding period

3. Expenses are 35% of Effective Gross Income

4. Purchase Price – Year 0 is $575,000 (Land Value is $100,000)

5. Loan Terms?

i. Loan to Value – 75%

ii. Interest Rate ? 6%

iii. Amortization ? 20 years

iv. Constant payment mortgage

6. This is a Multi family Property

7. The property is sold at the end of Year 2

i. Sales Price ? 9.5% Capitalization Rate of 2nd Year NOI

ii. Sales Commission ? 6%

8. Use the following tax rates:

Capital gains- 15%

Tax on accumulated depreciation- 25%

Personal Tax Rate- 28%

Questions:

1. Solve for the After Tax Cash Flows for Years 1 and 2

2. Solve for the After Tax IRR for the project

3. Solve for the IRR on a Before Tax Basis

4. Solve for the IRR on an unleveraged (cash basis)

Extra Credit – Based on the above numbers, is the subject property an example of positive, negative, or neutral leverage? What is the indicated cap rate based on your purchase price?

Reference no: EM132041949

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