An investor is considering buying an apartment complex for $2,000,000 that has a projected year one NOI of $140,000 and the NOI is expected to increase three percent annually. The investor intends to hold the property five years, sell it for a price calculated by capitalizing the sixth year NOI at seven percent (round the sale price to the nearest $1,000), and incur a cost of sale of four percent of the projected sale price. The tax assessor shows the improvements to be 80 percent of the total value. The investor's marginal tax rate is 37 percent, capital gains rate is 20 percent, and cost recovery recapture rate is 25 percent.
An investor is considering buying an apartment complex for $2,000,000 that has a projected year one NOI of $140,000 and the NOI is expected to increase three percent annually. The investor intends to hold the property five years, sell it for a price calculated by capitalizing the sixth year NOI at seven percent (round the sale price to the nearest $1,000), and incur a cost of sale of four percent of the projected sale price. The tax assessor shows the improvements to be 80 percent of the total value. The investor's marginal tax rate is 37 percent, capital gains rate is 20 percent, and cost recovery recapture rate is 25 percent.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Give typing answer with explanation and conclusion
Transcribed Image Text:An investor is considering buying an apartment complex for $2,000,000 that has a projected year
one NOI of $140,000 and the NOI is expected to increase three percent annually. The investor
intends to hold the property five years, sell it for a price calculated by capitalizing the sixth year NOI
at seven percent (round the sale price to the nearest $1,000), and incur a cost of sale of four percent
of the projected sale price. The tax assessor shows the improvements to be 80 percent of the total
value. The investor's marginal tax rate is 37 percent, capital gains rate is 20 percent, and cost
recovery recapture rate is 25 percent.
What is the "Without Financing/After Tax" Internal Rate of Return (rounded to nearest whole
percent?
7 percent
8 percent
9 percent
10 percent
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