Midterm exam answers

Midterm exam answers - Mid-Term Exam 6F:126 3/10/2008 Use...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Mid-Term Exam 6F:126 3/10/2008 Use the following information to answer questions 1-8. Show all steps in your calculations and circle or box your final answer. Questions 1-8 are worth 5 points each, question 9 is worth 10 points, and the multiple choice questions are worth 1 point each. Price $3,450,000 Interest Rate 5.6% the loan is interest only Scheduled Income $400,000 Loan Costs 1% of loan amount Vacancy 3% Depreciation Length 27.5 years Expenses $213,000 Land Value $500,000 Loan to Value Ratio 80% 1. How much cash will you need to enter into this investment? 3,450,000 – 0.8 x 3,450,000 + 0.01 x 0.8 x 3,450,000 = 3,450,000 – 2,760,000 + 27,600 = 717,600 2. What will be your first year cash flow? (do not include the amount in question 1) 400000 x 0.97 – 213,000 – 0.056 x 0.8 x 3,450,000 = 388,000 – 213,000 – 154,000 = 20,440 3. What is the cap rate? 400,000 x 0.97 – 213,000 388,000 – 213,000 175,000 _____________________ = _______________ = _______ = 5.07%
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3,450,000 3,450,000 3,450,000 4. What is the cash-on-cash rate of return for the first year? 20,440 ______ = 2.84% 717,600 5. How much depreciation on the building can you claim in your first year? 3,450,000 – 500,000 2,950,000 _________________ = _________ = 107,272.72 27.5 27.5 6. Assuming that there is no depreciation other than building depreciation, all income will be taxed at 35%, and that you are a “real estate professional” with a large amount of other income, how much federal income tax will you have to pay (or save) due to your ownership of this project during the first year? 20,440 – 107,272.72 = -86,832.72 or 86,832.72 in taxes saved
Background image of page 2
7. After 10 years of ownership, what will be your income tax basis? 3,450,000 – 10 x 107,272.72 = 3,450,000 – 1,072,727.27 = 2,377,272.73 8. If you sell the building for $4 million after 10 years of ownership, how much will you have to pay in capital gains tax (both kinds)? Do not take account of loan points, brokerage or acquisition costs. 0.25 x (3,450,000 – 2,377,272.73)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 10

Midterm exam answers - Mid-Term Exam 6F:126 3/10/2008 Use...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online