(Extension of problem 2) You are still an employee of University Consultants, Ltd. The investor tells you she would also like to know how tax considerations affect your investment analysis. You determine that the building represents 90 percent of value and would be depreciated over 39 years (use 1/39 per year). The potential investor indicates that she is in the 36 percent tax bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to any passive activity loss limitations. Capital gains from price appreciationwill be taxed at 20 percent and depreciation recapture will be taxed at 25 percent. a. What is the investor’s expected after-tax internal rate of return on equity invested (ATIRR)? How does this compare with the before-tax IRR (BTIRR) calculated earlier?b. What are the effective tax rate and before-tax equivalent yield?c. How would you evaluate the tax benefits of this investment?d. Recalculate the ATIRR in part (a) under the assumption that the investor cannot deduct any of the passive losses (they all become suspended) until the property is sold after five years.
Correlation
Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.
Linear Correlation
A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.
Regression Analysis
Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.
(Extension of problem 2) You are still an employee of University Consultants, Ltd. The investor tells you she would also like to know how tax considerations affect your investment analysis. You determine that the building represents 90 percent of value and would be depreciated over 39 years (use 1/39 per year). The potential investor indicates that she is in the 36 percent tax bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to any passive activity loss limitations. Capital gains from price appreciation
will be taxed at 20 percent and depreciation recapture will be taxed at 25 percent.
a. What is the investor’s expected after-tax internal rate of return on equity invested (ATIRR)? How does this compare with the before-tax IRR (BTIRR) calculated earlier?
b. What are the effective tax rate and before-tax equivalent yield?
c. How would you evaluate the tax benefits of this investment?
d. Recalculate the ATIRR in part (a) under the assumption that the investor cannot deduct any of the passive losses (they all become suspended) until the property is sold after five years.
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