You are an employee of a consultant company and have been given the following information to do an investment analysis of a new small income-producing property for sale to a potential investor. What is the effective tax rate? (Round your final answer to 2 decimals)
Asking Price: $2,000,000
Rent Year 1: $300,000
Growth Rent: 3%
Vacancy and Collection Loss: 10% of rents
Expenses: 30% of EGI
Appreciation Rate: 3%
Tax Considerations:
Building Value: $1,800,000
Depreciation: 39 years
Ordinary Income Tax Rate: 35%
Capital Gains Tax Rate: 20%
Depreciation Recapture Tax Rate: 25%
LTV: 70%
Loan Interest: 4%
Loan Term: 30 years
Payments Per Year: 12
Holding Period: 3 years
Selling Costs: 0% of sale price
Equity Discount Rate: 14%
After Tax Equity Discount Rate: 10%
The above information results in the following investment analysis.
Equity Loan Annual Loan Payment Mortgage Balance
$600,000 $1,400,000 $80,206 $1,322,982
Summary Loan Information
End of Year Payment Mortgage Balance Interest Principal
1 $80,206 $1,375,345 $55,551 $24,655
2 $80,206 $1,349,687 $54,547 $25,659
3 $80,206 $1,322,982 $53,501 $26,704
Year PGI VCL EGI Expenses NOI Debt Service BTCF
1 $300,000 $30,000 ? $81,000 $189,000 $80,206 C.
2 $309,000 $30,900 ? $83,430 $194,670 $80,206 ?
3 $318,270 $31,827 ? $85,933 $200,510 $80,206 C..
ION Less: Interest Less Depreciation Taxable Income Tax(Savings) ATCF
$189,000 $55,551 $44,231 $89,218 $31,226 ?
$194,670 $54,547 $46,154 $93,969 $32,889 ?
$200,510 $53,501 $46,154 $100,855 $35,299 ?
Cash Flow from Sale in Year Sale Price Sales Costs Mortgage Balance BICF
3 $2,185,454 $0 $1,322,982 ?
Original Cost Basis Accumulated Depreciation Adjusted Basis
$2,000,000 $136,538 $1,863,462
Capital Gain Depreciation Recapture Price Appreciation
$321,992 $136,538 $185,454
Tax on Price Appreciation Tax on Depreciation Recapture Total Capital Gain Tax
$37,091 $34,135 $71,225
After Tax Cash Flow from Sale
?
What is the effective tax rate? (Round your final answer to 2 decimals)