Calculate the net operating income

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Question: In the coming year, the Sandbergs expect a rental property investment costing $120,000 to have gross potential rental income of $20,000, vacancy and collection losses equaling 5% of gross income, and operating expenses of $10,000. The mortgage on the property is expected to require annual payments of $8,500. The interest portion of the mortgage payments and the depreciation are given below for each of the next 3 years. The Sandbergs are in the 25% marginal tax bracket.

Year          Interest          Depriciation

1              $8,300               $4,500

2              $8,200               $4,500

3              $8,100               $4,500

The net operating income is expected to increase by 6% each year beyond the first year.

a. Calculate the net operating income for each of the next 3 years.

b. Calculate the after-tax cash flow for each of the next 3 years.

Reference no: EM131627614

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