An investor has received the following information from a selling agent: • Purchase price $2,248,000 • NOI (net operating income) $248,440 • Capital Improvements $24,000 • Structural reserves $12,400 The anticipated financing structure is for an 80% mortgage with monthly payments of principal and interest, an interest rate of 8% per annum for a term of 25 years. a) Calculate CFO (cash flow from operations), CFAF (cash flow after financing), ROA and ROE.

Sure, let's calculate these step by step:

a) CFO (Cash Flow from Operations)

CFO is calculated by subtracting the capital improvements and structural reserves from the NOI (Net Operating Income).

CFO = NOI - Capital Improvements - Structural Reserves CFO = $248,440 -$24,000 - $12,400 CFO =$212,040

b) CFAF (Cash Flow After Financing)

To calculate CFAF, we first need to calculate the annual mortgage payment. The loan amount is 80% of the purchase price, the interest rate is 8% per annum, and the term is 25 years.

Loan amount = Purchase price * Mortgage percentage Loan amount = $2,248,000 * 80$1,798,400

We can use the formula for the annual mortgage payment:

Annual mortgage payment = Loan amount * [r(1 + r)^n] / [(1 + r)^n – 1]

Where: r = annual interest rate / number of payments per year = 8% / 12 = 0.00667 (monthly interest rate) n = number of payments = 25 years * 12 months/year = 300 payments

Annual mortgage payment = $1,798,400 * [0.00667(1 + 0.00667)^300] / [(1 + 0.00667)^300 – 1] =$162,392.04

Then, CFAF is calculated by subtracting the annual mortgage payment from the CFO.

CFAF = CFO - Annual mortgage payment CFAF = $212,040 -$162,392.04 = $49,647.96

c) ROA (Return on Assets)

ROA is calculated by dividing the NOI by the purchase price.

ROA = NOI / Purchase price ROA = $248,440 /$2,248,000 = 0.1105 or 11.05%

d) ROE (Return on Equity)

To calculate ROE, we first need to calculate the equity, which is the purchase price minus the loan amount.

Equity = Purchase price - Loan amount Equity = $2,248,000 -$1,798,400 = $449,600

Then, ROE is calculated by dividing the CFAF by the equity.

ROE = CFAF / Equity ROE = $49,647.96 /$449,600 = 0.1105 or 11.05%