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An investor would like to purchase a new apartment property for $2 million. However, she faces the decision of where to use 70 percent or 80 percent financing. The 70 percent loan can be obtained at 10 percent interest for 25 years. The 80 percent loan can be obtained at 11 percent interest for 25 years. NOI is expected to be $190,000 per year and increase at 3 percent annually, the same rate at which the property is expected to increase in value. The building and improvements represent 80 percent of value and will be depreciated over 27.5 years (1 27.5 per year). The project is expected to be sold after five years. Assume a 36 percent tax bracket for all income and capital gains taxes.

With the picture I provided how was the "Net Cash Flow Before-Tax" calcuated? For the second table can you let me know what equations were used. Would really appreciate it!

Valueofproperty=V(1+i)n=$2,000,000(1+0.03)5=2,000,0001.1592=$2,318,548 The value of the property of five years is $2,318,548. - The interest paid per annum can be calculated using the interest rate and proportion of loan: 1) Inter per annum when loan is 70% financing: Interestperannum=$2,000,0000.700.10=$140,000 The interest per annum is $140,000. - Expected net operating income in first year is $190,000 and expected growth rate is 3%. The calculations of before-tax IRR for the 70% loan is given below using excel: The before-tax IRR is 6% for the 70% loan. The calculations of after-tax IRR for the 70% loan is given below using excel: Valueofproperty=V(1+i)n=$2,000,000(1+0.03)5=2,000,0001.1592=$2,318,548 The value of the property of five years is $2,318,548. - The interest paid per annum can be calculated using the interest rate and proportion of loan: 1) Inter per annum when loan is 70% financing: Interestperannum=$2,000,0000.700.10=$140,000 The interest per annum is $140,000. - Expected net operating income in first year is $190,000 and expected growth rate is 3%. The calculations of before-tax IRR for the 70% loan is given below using excel: The before-tax IRR is 6% for the 70% loan. The calculations of after-tax IRR for the 70% loan is given below using excel

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