Should the investor buy the project

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Consider an apartment complex investment with a $500,000 purchase price. On a before-tax basis, should the investor buy the project? Why or why not?

A. First year gross rents = $500 per unit per month; there are 20 units
B. Vacancies and bad debts are expected to be 7% of PGI
C. First year operating expenses = $48,000
D. LTV ratio = 80% on a 10% mortgage for 25 years with monthly compounding
E. Depreciable basis = 85% of the purchase price
F. Future sale price = $550,000
G. Holding period = 60 months
H. Marginal tax rate = 28%; Capital gains rate = 15%
I. Require rate of return = 16%
J. Growth rates: Gross rents = 5% per year; Operating expenses = 5% per year
K. Financing costs = $16,000; Acquisition costs = $0
L. Prepayment penalty = 6%

 

Reference no: EM13262787

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