Given the following information regarding an income producing property,determine the after tax net present value (NPV) .Expected Holding Period: 5 years;1^st year Expected BTCF: $30,656;2^nd year Expected BTCF: $33,329;3^rd year Expected BTCF: $36,082;4^th year Expected BTCF: $38,918;5^th year Expected BTCF: $41,839;1^st year Expected Tax Liability: $7,645;2^nd year Expected Tax Liability: $8,658;3^rd year Expected Tax Liability: $9,708;4^th year Expected Tax Liability: $10,798;5^th year Expected Tax Liability: $6,951;Estimated
Before Tax Equity Reversion at end of year 5: $343,674;Expected Taxes Due on Sale at end of year 5: $32,032;Required equity investment: $241,163;After Tax Opportunity Cost: 11.2%

Question

Quizplus · Accepted Answer

To calculate the after tax NPV, we need to find the present value of all BTCFs (before tax cash flows) and tax liabilities, and then subtract the required equity investment, taxes due on sale, and the opportunity cost.

Using a financial calculator or Excel, the present value of BTCFs can be calculated as follows:

Year 1: $30,656 / (1+11.2%)^1 = $27,532
Year 2: $33,329 / (1+11.2%)^2 = $27,620
Year 3: $36,082 / (1+11.2%)^3 = $28,168
Year 4: $38,918 / (1+11.2%)^4 = $28,991
Year 5: $41,839 / (1+11.2%)^5 = $30,064
Total PV of BTCFs = $142,375

The present value of tax liabilities can be calculated in the same way:

Year 1: -$7,645 / (1+11.2%)^1 = -$6,871
Year 2: -$8,658 / (1+11.2%)^2 = -$6,670
Year 3: -$9,708 / (1+11.2%)^3 = -$6,996
Year 4: -$10,798 / (1+11.2%)^4 = -$7,285
Year 5: -$6,951 / (1+11.2%)^5 = -$4,616
Total PV of tax liabilities = -$32,438

To find the after tax NPV, we subtract the required equity investment ($241,163), taxes due on sale ($32,032), and the opportunity cost from the total present value of BTCFs and tax liabilities:

After tax NPV = $142,375 - $32,438 - $241,163 - $32,032 - $0 = $-40,858

Therefore, the best choice is (C).

Given the Following Information Regarding an Income Producing Property,determine the After