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 1 is closest to:

A. $103,500
B. $121,651
C. $156,040
Correct Answer: A

Net operating income is computed as:

User Contributed Comments 8

User Comment
Gina year 1: hence rent increase etc does not start until the second year.
Done What do you do about depreciation? and why?
myanmar depreciation is not a cash-event so don't use it for calculating NOI
pierreE14 how about the capital gains tax?
surob You don't need it in this question.
bobert Year 1 only, not beyond. If it was year 2, that would be one time consuming question.
jwebbs hey just threw a bunch of useless info at you to overwhelm you
davidt876 NOI = EBITDA
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