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Example 2: An office building was purchased for $1,400,000. The value
of depreciable improvements is $1,200,000.00 with a 35 year economic
life. Straight line depreciation will be used. The property is financed with a
$1,050,000 loan. The terms of the loan are 9.5% interest and $9,173.81
monthly payments for 25 years. The office building generates a Potential
Gross Income of $175,2000 which grows at a 3.5% annual rate. The
operating cost is $40,296.00 with a 1.6% annual growth rate. Assuming a
Marginal Tax Rate of 50% and a vacancy rate of 7%, what are the After-
Tax Cash Flows for the first 5 years?
125 6
125.00 Decline in balance factor.
35 7
35.00 Marginal Tax Rate.
6 8
6.00 Potential Gross Income growth rate.
2.5 9
2.50 Operating cost growth.
5 .0
5.00 Vacancy rate.
1.00
-1,020.88
Year 1
ATCF
1
2.00
-822.59
Year 2
ATCF
2
3.00
-598.85
Year 3
ATCF
3
4.00
-72.16
Year 4
ATCF
4
5.00
232.35
Year 5
ATCF
5
6.00
565.48
Year 6
ATCF
6
7.00
928.23
Year 7
ATCF
7
8.00
1,321.62
Year 8
ATCF
8
9.00
1,746.81
Year 9
ATCF
9
10.00
-1,020.88
Year 10
ATCF
10
Keystrokes Display
CLEAR
1050000
9173.81
9.5
175,200.00 Potential Gross Income.