Answer:
$378,374
Explanation:
Vacancy rate is 7% of gross rental income.
Operating expenses are 40% of effective gross income, which gross rental income less vacancy allowance.
Depreciation, reserve and interest expenses are deducted to arrive at tax charge, these are added back in net income after tax and total debt service is deducted to arrive at after-tax cash flow on the building. Calculation is performed below:
Rental Income 900,000
Less: Vacancy Loss (900,000*7%) <u> (63,000)</u>
Effective Gross Income 837,000
Less: Operating expense (837,000*40%) (334,800)
Less: Reserve (30,000)
Less: Depreciation (50,000)
Interest (7,500*90%) (6,750)
Net Income before tax 415,450
Tax @ 28% <u>(116,326)</u>
Net Income 299,124
Add Back:
Depreciation 50,000
Reserve 30,000
Interest 6,750
Less: Debt service <u>(7,500)</u>
After tax cash flow on the building <u>378,374</u>
