A property produces a first year new operating income of $200,000. It was prucha
ID: 2751180 • Letter: A
Question
A property produces a first year new operating income of $200,000. It was pruchased for $2,000,000 with an 80% LTV 30 year loan at 7% interest with annual payments. The land portion is valued at $200,000 and the building portion is valued at $1,800,000. Depreciation is straight line over 39 years.
a. If taxes are 25%, what is the After tax operating cash flow for the first year?
Please explain how to do this problem utilizaing a fianancial calculator. I know how to do most of it, but for some reason I can't get my calculator to come up with the correct payment. Thanks!
Explanation / Answer
Operating income $ 200,000.00 Less: Interest on loan $ 112,000.00 2000000*80%*7% Less: Depreciation $ 46,153.85 1800000/39 Profit before tax $ 41,846.15 Less: Tax@25% $ 10,461.54 Net inocme $ 31,384.62 Add: Depreciation $ 46,153.85 After tax operating cash flows $ 77,538.46
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