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Richard Rambo presently owns the Marine Tower office building, which is 20 years old, and is considering renovating it. He purchased the property two years ago for $800,000 and financed it with a 20 -year, 75 percent loan at 4.5 percent interest (monthly payments). Of the $800,000, the appraiser indicated that the land was worth $200,000 and the bulding $600,000. Rambo has been using straightline depreciation over 39 years (1/39 per year for simplicity). At the present time Marine Tower is producing $52,000 in NOI, and the NOI and property value are expected to increase 2 percent per year. The current market value of the property is $820,000. Rambo estimates that if the Marine Tower office buliding is renovated at a cost of $200,000, NO/ will be about 20 percent higher next year ($62,400 vs, $52,000 ) due to higher rents and lower expenses. He also expects that with the renovation the NO i will increase 3 percent per year instead of 2 percent. Furthermore, Rambo believes that after five years, a new investor will purchase the Marine Tower office building at a price based on capitalizing the projected NO/ six years from now at a 6 percent capitalization rate. Selling costs would be 6 percent of the sale price. Rambo is currently having to pay 35 percent tax on ordinary income, 20 percent on capital gain, and 25 percent on depreciation recapture which he expects to remain the same in the future. He also would not be subject to any passive activity loss limitations. If Rambo does the renovation, he belleves that he could obtain a new loan at a 5 percent interest rate and a 20 -year loan term (monthly payments). Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Assume that if Rambo does the renovation, he will be able to obtain a new loan that is equal to the balance of the existing loan renovation? Assume a five-year holding period. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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