CFA Practice Question

There are 195 practice questions for this study session.

CFA Practice Question

An investor is considering a 20-unit apartment building that is 10 years old and in excellent condition. The potential rent for the building is $625 per month per unit and is expected to increase 3% per year. Total vacancy and bad debt losses are projected at $6,000 per year, with 2% growth per year. Annual operating expenses include $30,000 for maintenance, $8,000 for property taxes, and $2,500 for property insurance. All operating expenses are expected to increase 2% annually. The property is depreciated using the straight-line method over 27.5 years, with an original depreciable basis of $650,000 (land valued at $50,000). The investor is in the 28% marginal income tax bracket, faces a 20% capital gains tax rate, and desires a minimum after-tax rate of return of 15%.

The net operating income for year 2 is closest to:
A. $105,570
B. $107,010
C. $107,070

User Contributed Comments 4

User Comment
linr0002 Depre need not be deducted as maintenance is included

Operating income need not take into account taxes
Lamkerst NOI is a pre-debt, pre-tax, pre-depreciation thing.
janis36 If its year 2, should we not multiply by 1.03 and 1.02 squared?
pires100 No janis36, that would be for year 3.
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