You are analyzing a commercial real estate investment that generates a net operating income of ,000,000 which increases by 3.5 percent per year. The purchase price is million, the land value is 20 percent of the total property value, the holding period is 10 years, the nominal income tax rate is 28 percent, the recapture tax rate is 25 percent and the long-term capital gain tax rate is 15 percent. A lender is willing to provide financing for the 10 year holding period with a 25 year amortization period for a fixed rate of 7 percent based on a loan to value ratio of 75 percent (25 percent equity). Calculate the before and after tax IRR and NPV based on a discount rate of 400 basis points above the going in cap rate and a terminal cap rate of 100 basis points over the going in cap rate. The cost of sale is three percent. What is the debt coverage ratio in year five?
I don’t expect anyone to do the math and answer this for me, but steps to solving it would be beneficial. I do not want the answer and I don’t want anyone to "do my homework" for me. It’s not homework either. I am just having a hard time figuring it out, especially the NPV and IRR. Any steps or comments would be much appreciated. Thanks