An analyst is assigned the task of evaluating a real estate investment project. Purchase price is...

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Finance

An analyst is assigned the task of evaluating a real estateinvestment project. Purchase price is $700,000. Using theinformation in the table below, calculate the after-tax cash flowfor the sale of the property.
After-tax cash flow without property sale
$33 546
Straight-line depreciation
$18 700
Mortgage Payment
$59 404
Cumulative Mortgage principle repayments until year 5
$20 783
80% financing at 10% interest rate
Marginal income tax rate
31%
Capital gains tax rate
20%
Forecasted sales price
$927 000
Sales expense as a % of price
6%

Answer & Explanation Solved by verified expert

4.4 Ratings (789 Votes)


	Price of property	$700,000
	Amount of Down payment(20%)	$140,000
Pv	Amount of Financing (80%)	$560,000
Rate	interest rate	10%
Pmt	Mortgage Payment	$59,404
Nper	Number of Years of mortgage	30	(Using Nper function of excelwith Rate=10%, Pmt=59404, Pv=-560000)
	Excel Command:NPER(10%,59404,-560000)
	INTEREST TAX SHIELD
	Mortgage Schedule:	A	B	C=A*10%	D=B-A	E=A-D	F=C*31%
	Year	Beginning Loan Balance	MortgagePayment	Interest	Principal	Ending Loan Balance	Interest Tax Shield
	1	$560,000	$59,404	$56,000	$3,404	$556,596	$17,360
	2	$556,596	$59,404	$55,660	$3,744	$552,852	$17,254
	3	$552,852	$59,404	$55,285	$4,119	$548,733	$17,138
	4	$548,733	$59,404	$54,873	$4,531	$544,202	$17,011
	5	$544,202	$59,404	$54,420	$4,984	$539,218	$16,870

	ANNUAL DEPRECIATION TAX SHIELD

	Annual Depreciation	$18,700
	Depreciation tax shield	$5,797	(18700*31%)

	ANNUAL CASH FLOWS
	Year	After tax cash flow	Interest tax shield	Depreciation tax shield	Mortgage payment	Total AnnualCash Flow
	1	$33,546	$17,360	$5,797	($59,404)	($2,701)
	2	$33,546	$17,254	$5,797	($59,404)	($2,807)
	3	$33,546	$17,138	$5,797	($59,404)	($2,923)
	4	$33,546	$17,011	$5,797	($59,404)	($3,050)
	5	$33,546	$16,870	$5,797	($59,404)	($3,191)

	TERMINALCASH FLOW
	Forecasted Sales Price	$927,000
	Sales expense(6%)	($55,620)
	Net Sales proceeds	$871,380
	Amount of Capital gain	$171,380	(871380-700000)
	CapitalGain Tax(20%)	($34,276)
	Depreciation Recapture	$93,500	(18700*5)
	Income tax(31%)	($28,985)
	After tax cash flow fromSales	$808,119	(871380-34276-28985)
	Balance Loan Payment	-$539,217	(560000-20783)
	Net Terminalcash Flow	$268,902	(808119-539217)

	YEARWISE NET CASH FLOW
	N	CF	CF/(1.1^N)
	YEAR	CASH FLOW	PV of CASH FLOW
	0	($140,000)	($140,000)
	1	($2,701)	-$2,455
	2	($2,807)	-$2,319
	3	($2,923)	-$2,196
	4	($3,050)	-$2,083
(-3191+268902)	5	$265,711	$164,986
		SUM	$15,932

	Net Present value	$15,932

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An analyst is assigned the task of evaluating a real estate investment project. Purchase price is...

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Finance

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Other questions asked by students

After-tax cash flow without property sale	$33 546
Straight-line depreciation	$18 700
Mortgage Payment	$59 404
Cumulative Mortgage principle repayments until year 5	$20 783
80% financing at 10% interest rate
Marginal income tax rate	31%
Capital gains tax rate	20%
Forecasted sales price	$927 000
Sales expense as a % of price	6%