You are planning to purchase a rental property with the inheritance from your fa

Question

You are planning to purchase a rental property with the inheritance from your favourite aunt. The financial information on this potential investment includes:

Projected ownership of 4 years.

Rental revenues before taxes of $600,000 at EOY1 decreasing thereafter

at an annual rate of 1.0%.

Annual expenses of $400,000 at EOY1 increasing thereafter at an annual

rate of 1.0%.

Today’s asking price for the building is $800,000 with an expected selling

price of $900,000 in 4 years.

The Canadian income tax rate on this type of investment is assumed to

be 50% (on profits before taxes, capital gains or losses, terminal losses

and on recaptured depreciation).

Buildings and equipment are to be depreciated using the DB method with

a 10% depreciation rate.

The half-year rule applies to the depreciation of the building.

Working capital = $0.

You will need a $500,000 loan at a 10% rate which will be repaid as

follows:

EOY1 = 0% of the total loan

EOY2 = 25%

EOY3 = 35%

EOY4 = 40%

The annual inflation rate is 2.0%.

MARRs are:

Before-taxes with inflation = 10%

Before-taxes without inflation (inflation-free) = 8%

After-taxes with inflation = 5%

After-taxes without inflation (inflation free) = 3%

*SV* stands for Salvage Value

I need to get this table filled in please.

BTCF Before-Tax Cash Flow: ATCF = After-Tax Cash Flow; CFOE = Cash Flow on Owner Equity END-OF-YEAR Annual revenues (AR) (Actual S) Annual costs (AC) (Actual S) 1. BTCF Operations" (Actual $) 2. BTCF "SV" (Actual $) 3. BTCF "Working Capital" (Actual S) 4. Total BTCF (Actual $) 5. BTCF "Operations" (Constant $) 6. BTCF "SV" (Constant $) . BTCF Working Capital" (Constant $) 8. Total BTCF (Constant $) 9. Annual Depreciation 10. Interest on loan 11. Taxable Operating Income 12. Taxes on Operating Income 13. Capital gains 14. Taxes on capital gains 15. Recaptured depreciation (or terminal loss) 16. Taxes on recaptured depreciation (or terminal loss) 17. ATCF "Operations" (Actual S) 18. ATCF "Operations" (Constant S) 3lPage END-OF-YEAR 19. ATCF "SV" (Actual $) 20. ATCF "SV" (Constant S) 21. ATCF "Working Capital" (Actual 22. ATCF ,'Working Capital" (Constant $) 23. Total ATCF 24. Total ATCF (Constant S) 25. (R10.) Interest on loan 26. Loan repayment 27. CFOE (Actual s) 28. CFOE (Constant S)

Explanation / Answer

Dear Student,

i am unable to understand some terminology, that why i am unable to answer few questions.

PARTICULARS 1 2 3 4 REVENUE 600000 594000 588060 582179.4 ANNUAL EXPENSES 400000 404000 408040 412120.4 SALVAGE VALUE 0 0 0 900000 TOTAL BTCF 200000 190000 180020 1070059 ANNUAL DEPRECIATION 8000 7200 6480 5832 INTEREST ON LOAN 50000 50000 37500 20000 TAXABLE OPERATING INCOME 142000 132800 136040 144227 CAPITAL GAINS 127512 TAX ON CAPITAL GAINS 63756 AFTER TAX CAPITAL GAIN 63756 PROFIT AFTER TAX 71000 66400 68020 72113.5 DEPRECIATION 8000 7200 6480 5832 ATCF 79000 73600 74500 77945.5 TOTAL ATCF 79000 73600 74500 141701.5 LAON REPAYMENT 125000 175000 200000

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