Reference no: EM132955255

An investor is considering buying a fully leased building with a rentable area of 300,000 square feet. The building is fully occupied by a single tenant who pays $12 per square foot in rent as per the terms of the NNN lease that will expire in 5 years. The investor will pay for the property with $7 million of his own equity and with a new mortgage loan of $7 million. The loan constant is 7.4%, the interest rate is 4.5% and debt is serviced annually. The annual replacement reserve is $200,000 but remains unutilized in the first year, and the annual depreciation is $250,000. The investor's marginal tax rate is 40%.

Problem i. The taxes payable in the first year of this investment would be:

(a) $901,250 (b) $952,500 (c) $1,112,500 (d) $1,214,000

Problem ii. The cash flow after financing in the first year is approximate:

(a) $2,882,000 (b) $2,732,533 (c) $2,800,000 (d) $2,945,238

Problem iii. The cash flow after tam the first-year front this investment is approximate:

(a) $945,750 (b) $1,668,000 (c) $2,376,500 (d) 3,363,750

Problem iv. The after-tax cash on cash yield in the first year from this investment is approximate:

(a) 18.1% (b) 19.9% (c) 21.1% CP(d) 23.8%

Problem v. The pre-tax return on assets in the first year from this investment is approximately (Hint: treat annual capital reserves above the NOI line):

(a) 18.0% (b) 24.3% (c) 28.0% (d) 29.2%