The following information applies to Questions 13 and 14: Net Operating Income:
ID: 2789995 • Letter: T
Question
The following information applies to Questions 13 and 14:
Net Operating Income: $14,000
Depreciation: $4,000
Debt Service: $13,000 (interest is $12,000 of this amount)
Vacancy and Credit Loss: $7,000
Interest Expense: $12,000
Operating Expenses: $3,000
Tax rate: 28%
13. Assuming that the investor can use any tax shelter benefits, what are the taxes due or the taxes saved ($$$) for these annual figures?
14. Assuming that the investor can use any tax shelter benefits, what is the cash flow after taxes?
Explanation / Answer
Net Operating Income: $14,000
Depreciation: $4,000
Interest Expense: $12,000
Tax rate: 28%
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Taxes saved = (Net Operating Income - Depreciation - Interest) * tax rate
= ($14000 - $4000 - $12000) * 28% = -$2000 * 0.28 = -$560
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Before Tax cashflow = Net Operating Income - Debt Service = $14000 - $13000 = $1000
Cashflow after taxes = Before Tax cashflow - Taxes = $1000 - (-$560) = $1000 + $560 = $1560
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