33 spreadsheet templates for real estate finance and investments

This Excel Workbook contains 33 spreadsheet templates that replicate the calculations in selected exhibits

published by McGraw-Hill The tabs below indicate the chapter and identity of the template.More information on the template is provide within the tab. Students can modify the templates to solveseveral of the end-of-chapter problems in the chapters associated with the template.Templates were developed by Jeffrey D. Fisher with the assistance of Anand Kumar.

The authors are not responsible for providing support on the use of the templates.

in Real Estate Finance and Investments, 13th ed. by William B. Brueggeman and and Jeffrey D. Fisher,

These templates are intended only for educational purposes and not warranted for any other purpose.

revised 10/9/06

This Excel Workbook contains 33 spreadsheet templates that replicate the calculations in selected exhibits

More information on the template is provide within the tab. Students can modify the templates to solve

, 13th ed. by William B. Brueggeman and and Jeffrey D. Fisher,

and not warranted for any other purpose.

Chapter 4 Effective Cost of a Loan with Points

Input Assumptions

Loan amount $60,000 Initial Interest rate 12.00%Loan term 30 yearsPoints 3

Monthly payment $617.17 Annual payment $7,406.01 (Assuming monthly payments)Annual constant 12.34%Effective cost (calculated below) 12.82%

Note: Do not change the payment and interest rate below unless you want to change from a standard fixed rate mortgage.

Year Month Beg. Balance Payment Rate Interest Principal0

1 1 $60,000.00 $617.17 12.00% 600.00 17.17 2 59,982.83 617.17 12.00% 599.83 17.34 3 59,965.49 617.17 12.00% 599.65 17.51 4 59,947.98 617.17 12.00% 599.48 17.69 5 59,930.29 617.17 12.00% 599.30 17.86 6 59,912.43 617.17 12.00% 599.12 18.04 7 59,894.38 617.17 12.00% 598.94 18.22 8 59,876.16 617.17 12.00% 598.76 18.41 9 59,857.76 617.17 12.00% 598.58 18.59

10 59,839.17 617.17 12.00% 598.39 18.78 11 59,820.39 617.17 12.00% 598.20 18.96 12 59,801.43 617.17 12.00% 598.01 19.15

2 1 59,782.27 617.17 12.00% 597.82 19.34 2 59,762.93 617.17 12.00% 597.63 19.54 3 59,743.39 617.17 12.00% 597.43 19.73 4 59,723.66 617.17 12.00% 597.24 19.93 5 59,703.72 617.17 12.00% 597.04 20.13 6 59,683.59 617.17 12.00% 596.84 20.33 7 59,663.26 617.17 12.00% 596.63 20.53 8 59,642.73 617.17 12.00% 596.43 20.74 9 59,621.99 617.17 12.00% 596.22 20.95

10 59,601.04 617.17 12.00% 596.01 21.16 11 59,579.88 617.17 12.00% 595.80 21.37 12 59,558.51 617.17 12.00% 595.59 21.58

3 1 59,536.93 617.17 12.00% 595.37 21.80 2 59,515.13 617.17 12.00% 595.15 22.02 3 59,493.12 617.17 12.00% 594.93 22.24

Spreadsheet Limitations: Prepayment assumed in 5 years

4 59,470.88 617.17 12.00% 594.71 22.46 5 59,448.42 617.17 12.00% 594.48 22.68 6 59,425.74 617.17 12.00% 594.26 22.91 7 59,402.83 617.17 12.00% 594.03 23.14 8 59,379.69 617.17 12.00% 593.80 23.37 9 59,356.32 617.17 12.00% 593.56 23.60

10 59,332.71 617.17 12.00% 593.33 23.84 11 59,308.87 617.17 12.00% 593.09 24.08 12 59,284.79 617.17 12.00% 592.85 24.32

4 1 59,260.48 617.17 12.00% 592.60 24.56 2 59,235.91 617.17 12.00% 592.36 24.81 3 59,211.10 617.17 12.00% 592.11 25.06 4 59,186.05 617.17 12.00% 591.86 25.31 5 59,160.74 617.17 12.00% 591.61 25.56 6 59,135.18 617.17 12.00% 591.35 25.82 7 59,109.36 617.17 12.00% 591.09 26.07 8 59,083.29 617.17 12.00% 590.83 26.33 9 59,056.96 617.17 12.00% 590.57 26.60

10 59,030.36 617.17 12.00% 590.30 26.86 11 59,003.49 617.17 12.00% 590.03 27.13 12 58,976.36 617.17 12.00% 589.76 27.40

5 1 58,948.96 617.17 12.00% 589.49 27.68 2 58,921.28 617.17 12.00% 589.21 27.95 3 58,893.32 617.17 12.00% 588.93 28.23 4 58,865.09 617.17 12.00% 588.65 28.52 5 58,836.57 617.17 12.00% 588.37 28.80 6 58,807.77 617.17 12.00% 588.08 29.09 7 58,778.68 617.17 12.00% 587.79 29.38 8 58,749.30 617.17 12.00% 587.49 29.67 9 58,719.63 617.17 12.00% 587.20 29.97

10 58,689.66 617.17 12.00% 586.90 30.27 11 58,659.38 617.17 12.00% 586.59 30.57 12 58,628.81 617.17 12.00% 586.29 30.88

Effective Cost 12.82%


(Assuming monthly payments)


End Balance Cash flow($58,200)

59,982.83 617.17 59,965.49 617.17 59,947.98 617.17 59,930.29 617.17 59,912.43 617.17 59,894.38 617.17 59,876.16 617.17 59,857.76 617.17 59,839.17 617.17 59,820.39 617.17 59,801.43 617.17 59,782.27 617.17 59,762.93 617.17 59,743.39 617.17 59,723.66 617.17 59,703.72 617.17 59,683.59 617.17 59,663.26 617.17 59,642.73 617.17 59,621.99 617.17 59,601.04 617.17 59,579.88 617.17 59,558.51 617.17 59,536.93 617.17 59,515.13 617.17 59,493.12 617.17 59,470.88 617.17

59,448.42 617.17 59,425.74 617.17 59,402.83 617.17 59,379.69 617.17 59,356.32 617.17 59,332.71 617.17 59,308.87 617.17 59,284.79 617.17 59,260.48 617.17 59,235.91 617.17 59,211.10 617.17 59,186.05 617.17 59,160.74 617.17 59,135.18 617.17 59,109.36 617.17 59,083.29 617.17 59,056.96 617.17 59,030.36 617.17 59,003.49 617.17 58,976.36 617.17 58,948.96 617.17 58,921.28 617.17 58,893.32 617.17 58,865.09 617.17 58,836.57 617.17 58,807.77 617.17 58,778.68 617.17 58,749.30 617.17 58,719.63 617.17 58,689.66 617.17 58,659.38 617.17 58,628.81 617.17 58,597.93 59,215


Loan $60,000 Term 30 yearsRate 12.00%Points 3.00%

Payment $ 617.17 (using payment function)Net Loan $ 58,200.00 Holding Period 5 yearsBalance $ 58,597.93 (present value of remaining payments)

Eff Cost 12.82% (using rate function)

Chapter 4 Effective Cost of a Constant Amortization Loan with Points

Input Assumptions

Loan amount $60,000 Initial Interest rate 12.00%Loan term 30 yearsPoints 3

Monthly payment $617.17 (If a CPM)Annual payment $7,406.01 (Assuming monthly payments)Annual constant 15.33% (Based on first month)Effective cost (calculated below) 12.88%


Year Month Beg. Balance Payment Rate Interest0

1 1 $60,000.00 $766.67 12.00% 600.00 2 59,833.33 $765.00 12.00% 598.33 3 59,666.67 $763.33 12.00% 596.67 4 59,500.00 $761.67 12.00% 595.00 5 59,333.33 $760.00 12.00% 593.33 6 59,166.67 $758.33 12.00% 591.67 7 59,000.00 $756.67 12.00% 590.00 8 58,833.33 $755.00 12.00% 588.33 9 58,666.67 $753.33 12.00% 586.67

10 58,500.00 $751.67 12.00% 585.00 11 58,333.33 $750.00 12.00% 583.33 12 58,166.67 $748.33 12.00% 581.67

2 1 58,000.00 $746.67 12.00% 580.00 2 57,833.33 $745.00 12.00% 578.33 3 57,666.67 $743.33 12.00% 576.67 4 57,500.00 $741.67 12.00% 575.00 5 57,333.33 $740.00 12.00% 573.33 6 57,166.67 $738.33 12.00% 571.67 7 57,000.00 $736.67 12.00% 570.00 8 56,833.33 $735.00 12.00% 568.33 9 56,666.67 $733.33 12.00% 566.67

10 56,500.00 $731.67 12.00% 565.00 11 56,333.33 $730.00 12.00% 563.33 12 56,166.67 $728.33 12.00% 561.67

3 1 56,000.00 $726.67 12.00% 560.00 2 55,833.33 $725.00 12.00% 558.33 3 55,666.67 $723.33 12.00% 556.67 4 55,500.00 $721.67 12.00% 555.00 5 55,333.33 $720.00 12.00% 553.33 6 55,166.67 $718.33 12.00% 551.67 7 55,000.00 $716.67 12.00% 550.00 8 54,833.33 $715.00 12.00% 548.33

9 54,666.67 $713.33 12.00% 546.67 10 54,500.00 $711.67 12.00% 545.00 11 54,333.33 $710.00 12.00% 543.33 12 54,166.67 $708.33 12.00% 541.67

4 1 54,000.00 $706.67 12.00% 540.00 2 53,833.33 $705.00 12.00% 538.33 3 53,666.67 $703.33 12.00% 536.67 4 53,500.00 $701.67 12.00% 535.00 5 53,333.33 $700.00 12.00% 533.33 6 53,166.67 $698.33 12.00% 531.67 7 53,000.00 $696.67 12.00% 530.00 8 52,833.33 $695.00 12.00% 528.33 9 52,666.67 $693.33 12.00% 526.67

10 52,500.00 $691.67 12.00% 525.00 11 52,333.33 $690.00 12.00% 523.33 12 52,166.67 $688.33 12.00% 521.67

5 1 52,000.00 $686.67 12.00% 520.00 2 51,833.33 $685.00 12.00% 518.33 3 51,666.67 $683.33 12.00% 516.67 4 51,500.00 $681.67 12.00% 515.00 5 51,333.33 $680.00 12.00% 513.33 6 51,166.67 $678.33 12.00% 511.67 7 51,000.00 $676.67 12.00% 510.00 8 50,833.33 $675.00 12.00% 508.33 9 50,666.67 $673.33 12.00% 506.67

10 50,500.00 $671.67 12.00% 505.00 11 50,333.33 $670.00 12.00% 503.33 12 50,166.67 $668.33 12.00% 501.67



(Assuming monthly payments)(Based on first month)


Principal End Balance Cash flow($58,200)

166.67 59,833.33 766.67 166.67 59,666.67 765.00 166.67 59,500.00 763.33 166.67 59,333.33 761.67 166.67 59,166.67 760.00 166.67 59,000.00 758.33 166.67 58,833.33 756.67 166.67 58,666.67 755.00 166.67 58,500.00 753.33 166.67 58,333.33 751.67 166.67 58,166.67 750.00 166.67 58,000.00 748.33 166.67 57,833.33 746.67 166.67 57,666.67 745.00 166.67 57,500.00 743.33 166.67 57,333.33 741.67 166.67 57,166.67 740.00 166.67 57,000.00 738.33 166.67 56,833.33 736.67 166.67 56,666.67 735.00 166.67 56,500.00 733.33 166.67 56,333.33 731.67 166.67 56,166.67 730.00 166.67 56,000.00 728.33 166.67 55,833.33 726.67 166.67 55,666.67 725.00 166.67 55,500.00 723.33 166.67 55,333.33 721.67 166.67 55,166.67 720.00 166.67 55,000.00 718.33 166.67 54,833.33 716.67 166.67 54,666.67 715.00

1 2 3 4 5

$500

$550

$600

$650

$700

$750

$800

Loan Payments: Constant Amort Mortgage vs. Constant Payment Mortgage

Constant Amort Loan

Constant Payment Mortgage

Year

Pay

men

t

166.67 54,500.00 713.33 166.67 54,333.33 711.67 166.67 54,166.67 710.00 166.67 54,000.00 708.33 166.67 53,833.33 706.67 166.67 53,666.67 705.00 166.67 53,500.00 703.33 166.67 53,333.33 701.67 166.67 53,166.67 700.00 166.67 53,000.00 698.33 166.67 52,833.33 696.67 166.67 52,666.67 695.00 166.67 52,500.00 693.33 166.67 52,333.33 691.67 166.67 52,166.67 690.00 166.67 52,000.00 688.33 166.67 51,833.33 686.67 166.67 51,666.67 685.00 166.67 51,500.00 683.33 166.67 51,333.33 681.67 166.67 51,166.67 680.00 166.67 51,000.00 678.33 166.67 50,833.33 676.67 166.67 50,666.67 675.00 166.67 50,500.00 673.33 166.67 50,333.33 671.67 166.67 50,166.67 670.00 166.67 50,000.00 50,668


1 2 3 4 5

$500

$550

$600

$650

$700

$750

$800

Loan Payments: Constant Amort Mortgage vs. Constant Payment Mortgage

Constant Amort Loan

Constant Payment Mortgage

Year

Pay

men

t

Chapter 4 Loan Balance on GPM

Input AssumptionsLoan Amount $60,000 Interest Rate 12.00%Loan Term 30 yearsPmt Increase 7.50%Inc. Years 5Points 0

Lender's Yield (after 7 yrs) 12.00%

INITIAL PAYMENT CALCULATION:

(1) (2) (3) (4) (5)PaymentPeriod Payment MPVIFA MPVIF (2x3x4)

1 1.00000 11.25508 1.00000 11.255082 1.07500 11.25508 0.88745 10.737433 1.15563 11.25508 0.78757 10.243604 1.24230 11.25508 0.69892 9.772475 1.33547 11.25508 0.62026 9.32302

6-25 1.43563 94.94655 0.55045 75.03072Pmt factor = 126.36231

Initial Payment:$474.83 <==== $60,000 126.36231

Loan Amt / Pmt Factor

LOAN AMORTIZATION SCHEDULE:

Month Payment Interest Principle Balance CPM Payment0 ($60,000) <==Amount Dispersed $60,000 1 $474.83 $600.00 ($125.17) $60,125 $617.17 2 $474.83 $601.25 ($126.43) $60,252 $617.17 3 $474.83 $602.52 ($127.69) $60,379 $617.17 4 $474.83 $603.79 ($128.97) $60,508 $617.17 5 $474.83 $605.08 ($130.26) $60,639 $617.17 6 $474.83 $606.39 ($131.56) $60,770 $617.17 7 $474.83 $607.70 ($132.88) $60,903 $617.17 8 $474.83 $609.03 ($134.20) $61,037 $617.17 9 $474.83 $610.37 ($135.55) $61,173 $617.17

10 $474.83 $611.73 ($136.90) $61,310 $617.17 11 $474.83 $613.10 ($138.27) $61,448 $617.17 12 $474.83 $614.48 ($139.65) $61,588 $617.17 EOY 1

Spreadsheet Limitations: Projections for 7 years

13 $510.44 $615.88 ($105.44) $61,693 $617.17 14 $510.44 $616.93 ($106.49) $61,799 $617.17 15 $510.44 $617.99 ($107.56) $61,907 $617.17 16 $510.44 $619.07 ($108.63) $62,016 $617.17 17 $510.44 $620.16 ($109.72) $62,125 $617.17 18 $510.44 $621.25 ($110.82) $62,236 $617.17 19 $510.44 $622.36 ($111.92) $62,348 $617.17 20 $510.44 $623.48 ($113.04) $62,461 $617.17 21 $510.44 $624.61 ($114.17) $62,575 $617.17 22 $510.44 $625.75 ($115.32) $62,691 $617.17 23 $510.44 $626.91 ($116.47) $62,807 $617.17 24 $510.44 $628.07 ($117.63) $62,925 $617.17 EOY 225 $548.72 $629.25 ($80.53) $63,005 $617.17 26 $548.72 $630.05 ($81.33) $63,087 $617.17 27 $548.72 $630.87 ($82.15) $63,169 $617.17 28 $548.72 $631.69 ($82.97) $63,252 $617.17 29 $548.72 $632.52 ($83.80) $63,336 $617.17 30 $548.72 $633.36 ($84.64) $63,420 $617.17 31 $548.72 $634.20 ($85.48) $63,506 $617.17 32 $548.72 $635.06 ($86.34) $63,592 $617.17 33 $548.72 $635.92 ($87.20) $63,679 $617.17 34 $548.72 $636.79 ($88.07) $63,767 $617.17 35 $548.72 $637.67 ($88.95) $63,856 $617.17 36 $548.72 $638.56 ($89.84) $63,946 $617.17 EOY 337 $589.87 $639.46 ($49.59) $63,996 $617.17 38 $589.87 $639.96 ($50.08) $64,046 $617.17 39 $589.87 $640.46 ($50.58) $64,096 $617.17 40 $589.87 $640.96 ($51.09) $64,147 $617.17 41 $589.87 $641.47 ($51.60) $64,199 $617.17 42 $589.87 $641.99 ($52.12) $64,251 $617.17 43 $589.87 $642.51 ($52.64) $64,304 $617.17 44 $589.87 $643.04 ($53.16) $64,357 $617.17 45 $589.87 $643.57 ($53.70) $64,411 $617.17 46 $589.87 $644.11 ($54.23) $64,465 $617.17 47 $589.87 $644.65 ($54.77) $64,520 $617.17 48 $589.87 $645.20 ($55.32) $64,575 $617.17 EOY 449 $634.11 $645.75 ($11.63) $64,587 $617.17 50 $634.11 $645.87 ($11.75) $64,598 $617.17 51 $634.11 $645.98 ($11.87) $64,610 $617.17 52 $634.11 $646.10 ($11.99) $64,622 $617.17 53 $634.11 $646.22 ($12.11) $64,634 $617.17 54 $634.11 $646.34 ($12.23) $64,647 $617.17 55 $634.11 $646.47 ($12.35) $64,659 $617.17 56 $634.11 $646.59 ($12.47) $64,671 $617.17 57 $634.11 $646.71 ($12.60) $64,684 $617.17 58 $634.11 $646.84 ($12.73) $64,697 $617.17 59 $634.11 $646.97 ($12.85) $64,710 $617.17 60 $634.11 $647.10 ($12.98) $64,722 $617.17 EOY 561 $681.67 $647.22 $34.45 $64,688 $617.17 62 $681.67 $646.88 $34.79 $64,653 $617.17 63 $681.67 $646.53 $35.14 $64,618 $617.17 64 $681.67 $646.18 $35.49 $64,583 $617.17 65 $681.67 $645.83 $35.85 $64,547 $617.17 66 $681.67 $645.47 $36.21 $64,511 $617.17

67 $681.67 $645.11 $36.57 $64,474 $617.17 68 $681.67 $644.74 $36.93 $64,437 $617.17 69 $681.67 $644.37 $37.30 $64,400 $617.17 70 $681.67 $644.00 $37.68 $64,362 $617.17 71 $681.67 $643.62 $38.05 $64,324 $617.17 72 $681.67 $643.24 $38.43 $64,286 $617.17 EOY 673 $681.67 $642.86 $38.82 $64,247 $617.17 74 $681.67 $642.47 $39.21 $64,208 $617.17 75 $681.67 $642.08 $39.60 $64,168 $617.17 76 $681.67 $641.68 $39.99 $64,128 $617.17 77 $681.67 $641.28 $40.39 $64,088 $617.17 78 $681.67 $640.88 $40.80 $64,047 $617.17 79 $681.67 $640.47 $41.20 $64,006 $617.17 80 $681.67 $640.06 $41.62 $63,964 $617.17 81 $681.67 $639.64 $42.03 $63,922 $617.17 82 $681.67 $639.22 $42.45 $63,879 $617.17 83 $681.67 $638.79 $42.88 $63,837 $617.17 84 $64,474.98 $638.37 $43.31 $63,793 $617.17 EOY 7

Chapter 4 Loan Balance on GPM

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384

$57,000 $58,000 $59,000 $60,000 $61,000 $62,000 $63,000 $64,000 $65,000 $66,000

GPM Loan Balance

Month

Bal

ance

012345678910111213141516171819202122232425262728293031323334353637383940414243444546474849505152535455565758596061626364656667686970717273747576777879808182

$300 $350 $400 $450 $500 $550 $600 $650 $700 $750

GPM vs CPM Payment

Month

Pay

men

t

0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778798081828384

$57,000 $58,000 $59,000 $60,000 $61,000 $62,000 $63,000 $64,000 $65,000 $66,000

GPM Loan Balance

Month

Bal

ance

012345678910111213141516171819202122232425262728293031323334353637383940414243444546474849505152535455565758596061626364656667686970717273747576777879808182

$300 $350 $400 $450 $500 $550 $600 $650 $700 $750

GPM vs CPM Payment

Month

Pay

men

t

Chapter 5 Unrestricted ARM

Loan assumptionsAmount $60,000 Initial rate 8.00%Term 30 yearsPayments per year 12Margin 2.00%Points 2.00%

Loan schedule

Year Index Rate Payment Balance Cash flow(58,800)

1 8.00% 440.26 59,499 5,283 2 10.00% 12.00% 614.24 59,255 7,371 3 13.00% 15.00% 752.26 59,106 9,027 4 15.00% 17.00% 846.20 58,991 10,154 5 10.00% 12.00% 617.60 58,639 66,050

Yield 12.98%

Yield is based on monthly cash flows below.

Month Cash flow0 (58,800)1 440 2 440 3 440 4 440 5 440 6 440 7 440 8 440 9 440

10 440 11 440 12 440 13 614 14 614 15 614 16 614 17 614 18 614

19 614 20 614 21 614 22 614 23 614 24 614 25 752 26 752 27 752 28 752 29 752 30 752 31 752 32 752 33 752 34 752 35 752 36 752 37 846 38 846 39 846 40 846 41 846 42 846 43 846 44 846 45 846 46 846 47 846 48 846 49 618 50 618 51 618 52 618 53 618 54 618 55 618 56 618 57 618 58 618 59 618 60 59,257

Chapter 5 ARM with Interest Rate Cap

Loan assumptionsAmount $60,000 Initial rate 11.00%Annual rate cap 2.00%Lifetime rate cap 5.00%Term 30 yearsPayments per year 12Margin 2.00%Points 2.00%

Loan scheduleUnrestricted Restricted

Year Index Rate Rate Payment Balance Cash flow(58,800)

1 11.00% 11.00% 571.39 59,730 6,857 2 10.00% 12.00% 12.00% 616.63 59,485 7,400 3 13.00% 15.00% 14.00% 708.37 59,301 8,500 4 15.00% 17.00% 16.00% 801.65 59,159 9,620 5 10.00% 12.00% 12.00% 619.37 58,807 66,239

Yield 13.38%


Month Cash flow0 (58,800)1 571 2 571 3 571 4 571 5 571 6 571 7 571 8 571 9 571

10 571 11 571 12 571 13 617 14 617 15 617 16 617

17 617 18 617 19 617 20 617 21 617 22 617 23 617 24 617 25 708 26 708 27 708 28 708 29 708 30 708 31 708 32 708 33 708 34 708 35 708 36 708 37 802 38 802 39 802 40 802 41 802 42 802 43 802 44 802 45 802 46 802 47 802 48 802 49 619 50 619 51 619 52 619 53 619 54 619 55 619 56 619 57 619 58 619 59 619 60 59,426

Cash flow

Chapter 5ARM with Payment Cap

Loan assumptionsAmount $60,000 Initial rate 9.00%Annual Payment cap 7.50%Term 30 yearsPayments per year 12Margin 2.00%Points 2.00%

Loan scheduleUnrestricted Capped

Year Index Rate Payment Payment Balance Cash flow(58,800)

1 9.00% 482.77 482.77 59,590 5,793 2 10.00% 12.00% 615.18 518.98 60,566 7,382 3 13.00% 15.00% 768.90 557.91 63,127 9,227 4 15.00% 17.00% 903.77 599.75 66,950 10,845 5 10.00% 12.00% 700.94 644.73 67,265 75,676

Yield 15.60%


Month Cash flow0 (58,800)1 483 2 483 3 483 4 483 5 483 6 483 7 483 8 483 9 483

10 483 11 483 12 483 13 615 14 615 15 615 16 615 17 615 18 615

19 615 20 615 21 615 22 615 23 615 24 615 25 769 26 769 27 769 28 769 29 769 30 769 31 769 32 769 33 769 34 769 35 769 36 769 37 904 38 904 39 904 40 904 41 904 42 904 43 904 44 904 45 904 46 904 47 904 48 904 49 701 50 701 51 701 52 701 53 701 54 701 55 701 56 701 57 701 58 701 59 701 60 67,966

Cash flow

Chapter 5Shared Appreciation Mortgage

Part A

Loan assumptionsHome price $110,000Home apprec. 25.00%Resale price $137,500Loan $95,000 Term 30 yearsRate 8.00%Points 0.00%Participation 30.00%

Payment $697.08 (using payment function)Net Loan 95000Holding Period 5 yearsBalance $90,316.36 (present value of remaining payments)Appreciation $8,250Total to lender $98,566.36


Part B




Part C - I

Home Appreciation is solved using Solver by setting Eff cost (C45) as target cell and Home Appreciation (C30) as changing cell




Part C - II





Chapter 5Shared Appreciation Mortgage

Part A

Part B

Part C - I


Part C - II


Chapter 6Incremental Cost

PART A

Holding period 25

Loan Points Loan Proceeds Rate Term* Payment$90,000 0.00% $90,000 8.50% 25 724.70$80,000 0.00% $80,000 8.00% 25 617.45$10,000 $10,000 25 107.25

Incremental Cost 12.87% *Should be the same term for both loans

PART B

Holding period 25



PART C

Holding period 5



Chapter 6Incremental Cost

PART A

Balance$90,000.00 $80,000.00

10,000.00

*Should be the same term for both loans

PART B

Balance$90,000.00 $80,000.00

10,000.00


PART C

Balance$90,000.00 $80,000.00

10,000.00


Chapter 6Combined Cost

PART A

Holding period 20Loan 1Loan Points Loan Proceeds Rate Term* Payment

$220,000 0.00% $220,000 9.50% 20 2,050.69

Loan 2Loan Points Loan Proceeds Rate Term* Payment

$180,000 0.00% $180,000 9.00% 20 1,619.51$40,000 0.00% $40,000 13.00% 20 468.63220000 220000 20 2,088.14

Discount rate 9.00%Net Benefit in taking Loan 1 $4,162.20

PART B


$220,000 0.00% $220,000 9.50% 20 2,050.69


$180,000 0.00% $180,000 9.00% 20 1,619.51$40,000 0.00% $40,000 13.00% 20 468.63220000 220000 20 2,088.14


PART C - I


$220,000 0.00% $220,000 9.50% 20 2,050.69


$180,000 0.00% $180,000 9.00% 20 1,619.51$40,000 0.00% $40,000 13.00% 10 597.24220000 220000 20 2,216.75

Discount rate 9.00%

Net Benefit in taking Loan 1 ($1,268.97)

PART C - II


$220,000 0.00% $220,000 9.50% 20 2,050.69


$180,000 0.00% $180,000 9.00% 20 1,619.51$40,000 0.00% $40,000 13.00% 10 597.24220000 220000 20 2,216.75


Chapter 6Combined Cost

PART A

Balance$220,000.00

Balance$180,000.00

$40,000.00 220000

PART B

Balance$220,000.00

Balance$180,000.00

$40,000.00 220000

PART C - I

Balance$220,000.00

Balance$180,000.00

$40,000.00 220000

PART C - II

Balance$220,000.00

Balance$180,000.00

$40,000.00 220000

Chapter 7Rent versus Own Analysis of a Personal Residence

Property information Loan Information:

Loan-to-value ratioPurchase price $150,000 Loan amountInitial Rent $12,000 Interest rateRental growth rate 2.00% Loan term (years)Property growth rate 2.00% Payments (per year)Insurance $500Maintenance $500Expense growth 2.00%Marginal tax rate 28.00%Property tax % 1.50%Selling expenses 7.00%

Loan and equity calculations

Annual debt service (payment) $9,580 Annual loan constant 7.98% Equity investment $30,000

Summary loan scheduleEnd of year 1 2Payment $9,580 $9,580 Balance 118,781 117,474 Interest 8,361 8,273 Principal 1,219 1,307

Property Data0 1 2

Property value $150,000 153,000 156,060 Rents 12,000 12,240

BTCF (owner)Year 1 2

Property taxes 2,250 2,295Insurance 500 510Maintenance 500 510Principal and Interest 9,580 9,580Cash Outflows before taxes 12,830 12,895

Tax deductions from owning

Property taxes $2,250 $2,295 Interest 8,361 8,273

Total tax deductions $10,611 $10,568Tax savings 2,971 2,959

Net cost of owningCash Outflows before taxes 12,830 12,895 Tax savings 2,971 2,959 After tax cost 9,859 9,936

Net cost of rentingRents $12,000 $12,240

Net Cash Flow from Owning Before SaleCost of renting $12,000 $12,240Cost of owning 9,859 9,936 After Tax Cash Flow Own vs Rent $2,141 $2,304

BT Cash Flow - Sale1 2

Sales price 153,000 156,060 Selling Costs 10,710 10,924 Mortgage balance 118,781 117,474 Benefit from sale (own - rent) 23,509 27,662

AT Cash Flow - Sale

Sales price $153,000 $156,060 Less selling costs 10,710 10,924 Less purchase price 150,000 150,000 Gain on sale (7,710) (4,864)Exclusion 0 0 Taxable gain 0 0 Tax 0 0 After tax cash flow 23,509 27,662

Cash savings and IRR summaryCash flows

Year Sold 0 1 21 -30,000 $25,650 2 -30,000 2,141 29,9663 -30,000 2,141 2,3044 -30,000 2,141 2,3045 -30,000 2,141 2,304

Chapter 7Rent versus Own Analysis of a Personal Residence

Loan Information:

Loan-to-value ratio 80.00%$120,000

7.00%3012

Summary loan schedule3 4 5

$9,580 $9,580 $9,580 116,072 114,569 112,958

8,179 8,077 7,969 1,402 1,503 1,612

Property Data3 4 5

159,181 162,365 165,612 12,485 12,734 12,989

BTCF (owner)3 4 5

2,341 2,388 2,435520 531 541520 531 541

9,580 9,580 9,58012,962 13,029 13,098

Tax deductions from owning

$2,341 $2,388 $2,435 8,179 8,077 7,969

$10,520 $10,465 $10,4042,946 2,930 2,913

Net cost of owning12,962 13,029 13,098

2,946 2,930 2,913 10,016 10,099 10,185

Net cost of renting$12,485 $12,734 $12,989

Net Cash Flow from Owning Before Sale$12,485 $12,734 $12,98910,016 10,099 10,185 $2,469 $2,635 $2,804

BT Cash Flow - Sale3 4 5

159,181 162,365 165,612 11,143 11,366 11,593

116,072 114,569 112,958 31,966 36,430 41,061

AT Cash Flow - Sale

$159,181 $162,365 $165,612 11,143 11,366 11,593

150,000 150,000 150,000 (1,961) 999 4,019

0 999 4,019 0 0 0 0 0 0

31,966 36,430 41,061

Cash savings and IRR summaryATIRR

3 4 5-14.50%

3.57%34,435 9.63%

2,469 39,065 12.34%2,469 2,635 43,865 13.71%

Chapter 9Effective Rents

Data Input Box:Inerest Rate 0.1 AdjustmentsYear 1 Rents Step Amount 1Net Lease with Steps 10 Percent CPI Adj. 1Net with CPI Adjustment 11 Yr 2 CPI 0.02Gross Lease 17.5 CPI Growth 0.01Gross with Exp. Stop 15.5 Yr 1 Expenses 4Gross with Exp. Stop &CPI 14.5 Expense Growth 0.5Year 2 Rents Expense Stop 4Net Lease with Free Rent 14.5

NET LEASE with STEPS:Year 1 2 3 4 5

Net Rent $ 10.00 11.00 12.00 13.00 14.00 Average Rent $ 12.00 Present Value 44.77 Effective Rent 11.81

NET LEASE with FREE RENT:Year 1 2 3 4 5

Net Rent 0 14.50 15.50 16.50 17.50 Average Rent 12.80 Present Value 45.76 Effective Rent 12.07

NET LEASE with CPI ADJUSTMENT:Year 1 2 3 4 5

Expected CPI - 2.00% 3.00% 4.00% 5.00%Net Rent 11.00 11.22 11.56 12.02 12.62Average Rent 11.68 Present Value 44.00 Effective Rent 11.61

GROSS LEASE:Year 1 2 3 4 5

Gross Rent 17.50 17.50 17.50 17.50 17.50 Less Expenses 4.00 4.50 5.00 5.50 6.00 Net Rent 13.50 13.00 12.50 12.00 11.50 Average Rent 12.50 Present Value 47.74 Effective Rent 12.59

Spreadsheet Limitations: Net Lease with free rent has begins payment year two.

GROSS LEASE with EXPENSE STOP:Year 1 2 3 4 5

Gross Rent 15.50 15.50 15.50 15.50 15.50 Less Expenses 4.00 4.50 5.00 5.50 6.00 Plus Reimburse 0.00 0.50 1.00 1.50 2.00 Net Rent 11.50 11.50 11.50 11.50 11.50 Average Rent 11.50 Present Value 43.59 Effective Rent 11.50

GROSS LEASE with EXPENSE STOP and CPI ADJUSTMENT:Year 1 2 3 4 5

Expected CPI - 2.00% 3.00% 4.00% 5.00%Gross Rent 14.50 14.79 15.23 15.84 16.64Less Expenses 4.00 4.50 5.00 5.50 6.00 Plus Reimburse 0.00 0.50 1.00 1.50 2.00 Net Rent 10.50 10.79 11.23 11.84 12.64 Average Rent 11.40 Present Value 42.84 Effective Rent 11.30

Chapter 9Effective Rents

Data Input Box:

per year

per year

per year

Net Lease with free rent has begins payment year two.

Chapter 10Mortgage-Equity Capitalization

Data Input Box:NOI 50000Projected Increase in NOI 0.03 per yearOperating Expenses 0.3 of EGILoan: Debt Coverage Ratio 1.2 Interest 0.11 Term 20 years Payments per year 12

Holding Period 5 yearsTerminal Cap Rate 0.11Before-tax Equity Yield 0.12

Loan Constant 12.3863%Loan Amount 336,394 67.02% LTVLoan Balance 305,493 in year 5

Year 1 2 3 4 5Net Operating Income 50,000 51,500 53,045 54,636 56,275

Debt Service 41,667 41,667 41,667 41,667 41,667 Before-tax Cash Flow 8,333 9,833 11,378 12,970 14,609

DCR 1.20 1.24 1.27 1.31 1.35

Cash Flows from Sale in Year 5

Sales Price 526,943 Mortgage Balance 305,493 Before-tax Cash Flow 221,450

Present Value of Operations at 12.00% 39,910 Present value of Reversion at 12.00% 125,657 Total Equity 165,567

Total Equity 165,567 Mortgage 336,394 Total Present Value 501,961

Spreadsheet Limitations: Five year Holding Period; loan based on DCR and resale based on terminal cap rate.

Check:Cash Flow Summary

Year 0 1 2 3 4BTCF (165,567) 8,333 9,833 11,378 12,970

BTIRR 12.00%

Chapter 10Mortgage-Equity Capitalization

657,964

: Five year Holding Period; loan based on DCR and resale based on terminal cap rate.

5236,059

Chapter 10Highest and Best Use Analysis

Data Input Box:Office Retail Apartment

NOI yr 1 $500,000 $600,000 $400,000 13.00% 12.00% 12.00%3.00% 4.00% 3.00%

Building Costs 4,000,000 4,000,000 4,000,000

HIGHEST and BEST USE ANALYSIS:

Use Year 1 NOI ROffice $500,000 10.00% 5,000,000 4,000,000 Retail 600,000 8.00% 7,500,000 4,000,000 Apartment 400,000 9.00% 4,444,444 4,000,000 Warehouse 400,000 8.00% 5,000,000 4,000,000

Return or rGrowth or g

Implied Property Value

Building Costs

Chapter 10Highest and Best Use Analysis

Data Input Box:Warehouse$400,000 10.00%2.00%

4,000,000

HIGHEST and BEST USE ANALYSIS:

1,000,000 3,500,000 444,444

1,000,000

Implied Land Value

Chapter 10Oakwood Apartment Example

Building Name OakwoodAddress 1234 Elm StreetCity AnywhereState USATotal Units 95Unit Size 1,100 Building Size (SF) 104,500

Analysis Begin Date 1/1/2000Holding Period 5Discount Rate 11.00%Terminal Rate 9.00%Selling Cost 5.00%

Inputs Apartment UnitName Two BedroomUnits 95Monthly Rent $1,200.00 Lease Term (Yrs) 1 Market Monthly Rent $1,250.00 Market Rent Increase 3.00%

Laundry Income/unit/year $120.00 Laundry Income increase 3.00%

Market Vacancy Rate 5.00%Credit Loss Rate 1.00%

% of EGI $ Amount $ per UnitReal Estate Taxes 0.00% $87,000.00 $0.00 Office Expenses 0.00% $20,000.00 $0.00 Insurance 0.00% $0.00 $150.00 Repairs & Maintenance 0.00% $0.00 $550.00 Advertising 0.00% $8,000.00 $0.00 Management 12.00% $0.00 $0.00 Utilities 0.00% $45,000.00 $0.00 Miscellaneous Expenses 0.00% $15,000.00 $0.00

OutputsYear 1 2 3

Income:Current Rent $1,368,000 $0 $0 Market Rent from lease renewals $0 $1,467,750 $1,511,783Laundry Income $11,400 $11,742 $12,094Potential Gross Income (PGI) $1,379,400 $1,479,492 $1,523,877 Less: Vacancy $68,400 $73,388 $75,589 Less: Credit Loss $13,794 $14,795 $15,239

Effective Gross Income (EGI) $1,297,206 $1,391,310 $1,433,049

Expenses:Real Estate Taxes $87,000 $89,175 $91,404 Office Expenses $20,000 $20,600 $21,218 Insurance $14,250 $14,678 $15,118 Repairs & Maintenance $52,250 $53,818 $55,432 Advertising $8,000 $8,240 $8,487 Management $155,665 $166,957 $171,966 Utilities $45,000 $46,350 $47,741 Miscellaneous Expenses $15,000 $15,450 $15,914 Total Expenses $397,165 $415,267 $427,279

Net Operating Income (NOI) $900,041 $976,042 $1,005,770

Expenses % of EGI 30.62% 29.85% 29.82%

Net Operating Income $900,041 $976,042 $1,005,770 PV Factors 0.90090 0.81162 0.73119 Present Value $810,848 $792,178 $735,410

Resale $12,227,545 Selling Cost $611,377 Net Resale $11,616,168 PV Factor 0.59345 PVResale $6,893,630

Implied Change in Value

Chapter 10Oakwood Apartment Example

Change %2.50%3.00%3.00%3.00%3.00%0.00%3.00%3.00%

Outputs4 5 6

$0 $0 $0 $1,557,136 $1,603,850 $1,651,966

$12,457 $12,831 $13,216$1,569,593 $1,616,681 $1,665,181

$77,857 $80,193 $82,598 $15,696 $16,167 $16,652

$1,476,040 $1,520,322 $1,565,931

$93,689 $96,032 $98,433 $21,855 $22,510 $23,185 $15,571 $16,039 $16,520 $57,095 $58,808 $60,572

$8,742 $9,004 $9,274 $177,125 $182,439 $187,912

$49,173 $50,648 $52,167 $16,391 $16,883 $17,389

$439,641 $452,361 $465,452

$1,036,400 $1,067,960 $1,100,479

29.79% 29.75% 29.72%

$1,036,400 $1,067,960 $1,100,479 0.65873 0.59345

$682,709 $633,782

Sum PV NOI $3,654,927 PV Resale $6,893,630 Value $10,548,557

Implied Change in Value 15.92%

Chapter 11 Lease Calculations: Given Lease Data, Solve for NOI

Corresponds with Homework Problem 10-1

Input Data:Current Market Rent $15.00 per s.f.Gross square feet of building 100,000 s.f.Net rentable square feet of building 96,000 s.f.Projected Increase in Market Rent 4.00% per yearManagement costs 5.00% of Effective Gross IncomeEstimated increase in CPI 4.00% per yearVacancy rate starting year 4 5.00% per year

SUMMARY LEASE INFORMATION

Current Tenant Sq. ft. Rent Current

per s.f. Rent

Tenant 1 70,000 $14.00 $980,000 Tenant 2 0 $14.00 0 Tenant 3 0 $14.00 0 Tenant 4 10,000 $14.50 145,000 Tenant 5 0 $15.00 0 Tenant 6 16,000 $15.00 240,000

Total 96,000 1,365,000

Note: Expense stop excludes management expenses

Summary of Expense InformationDollars per s.f.

Property tax $148,800 1.55Insurance 14,400 0.15Utilities 120,000 1.25Janitorial 76,800 0.80Maintenance 67,200 0.70

Subtotal (before mgt) 427,200 4.45

Management $68,250 0.71

Total $495,450 $5.16

Spreadsheet Assumption: Vacancy rate does not take effect until the beginning of year 4.

PROJECTED BASE INCOMEYear 1 2

Tenant 1 980,000 980,000 Tenant 2 0 0 Tenant 3 0 0 Tenant 4 145,000 145,000 Tenant 5 0 0 Tenant 6 240,000 240,000

Total base 1,365,000 1,365,000

Tenant 1 19,600 39,592 Tenant 4 2,900 5,858 Tenant 6 0 4,800

Total CPI 22,500 50,250

Total Base and CPI 1,387,500 1,415,250

Expense ReinmursementsTenant 1 $31,500 $39,445 Tenant 2 0 0 Tenant 3 0 0 Tenant 4 2,000 3,135 Tenant 5 0 0 Tenant 6 0 1,816 Total Reimbursements 33,500 44,396

Potential Gross Income 1,421,000 1,459,646 Vacancy 0 0 Effective Gross Income 1,421,000 1,459,646

SUMMARY OF OPERATING EXPENSES

Reimbursable expensesProperty tax 148,800 148,800 Insurance 14,400 14,976 Utilities 120,000 126,000 Janitorial 76,800 79,104 Maintenance 67,200 69,216 Total before management 427,200 438,096 per s.f. 4.45 4.56

Non reimbursable expensesManagement 71,050 72,982

Total expenses

Total Expenses 498,250 511,078

PROJECTED NET OPERATING INCOMEYear 1 2

Base income $1,365,000 $1,365,000 Plus CPI Adjustment 22,500 50,250 Plus Reimbursements $33,500 $44,396 Total Potential Income $1,421,000 $1,459,646 Less Vacancy 0 0 Effective Gross Income 1,421,000 1,459,646 Less operating expenses: Reimbursable expenses 427,200 438,096 Non reimbursable expenses 71,050 72,982 NOI $922,750 $948,568

Asking price $8,500,000 Capitalization rate 10.86% (1st year NOI / Price)

Average compound increase in NOI 2.63%

Chapter 11 Lease Calculations: Given Lease Data, Solve for NOI

Corresponds with Homework Problem 10-1

SUMMARY LEASE INFORMATION

Remaining Expense stop CPI adjustment

term (yrs) per s.f.

3 $4.00 50.00%3 4.00 50.00%3 4.00 50.00%4 4.25 50.00%5 4.45 50.00%5 4.45 50.00%

Note: Expense stop excludes management expenses

Summary of Expense Information

Level for 2 years then 10% increase, then level increase 4.00% per year increase 5.00% per year increase 3.00% per year increase 3.00% per year

(before management expenses)

5.00% of EGI

Vacancy rate does not take effect until the beginning of year 4.

PROJECTED BASE INCOME3 4 5 6

980,000 1,181,107 1,181,107 1,181,107 0 0 0 0 0 0 0 0

145,000 145,000 175,479 175,479 0 0 0 0

240,000 240,000 240,000 291,997

1,365,000 1,566,107 1,596,586 1,648,583

59,984 0 23,622 47,717 8,875 11,953 0 3,510 9,696 14,690 19,784 0

78,555 26,643 43,406 51,226

1,443,555 1,592,750 1,639,992 1,699,809

Expense Reinmursements$58,570 $0 $8,979 $18,334

0 0 0 0 0 0 0 0

5,867 7,099 0 1,336 0 0 0 0

6,187 8,158 10,210 0 70,625 15,256 19,189 19,670

1,514,180 1,608,006 1,659,181 1,719,479 0 80,400 82,959 85,974

1,514,180 1,527,606 1,576,222 1,633,505

SUMMARY OF OPERATING EXPENSES

Reimbursable expenses163,680 163,680 163,680 163,680

15,575 16,198 16,846 17,520 132,300 138,915 145,861 153,154

81,477 83,921 86,439 89,032 71,292 73,431 75,634 77,903

464,325 476,146 488,460 501,289 4.84 4.96 5.09 5.22

Non reimbursable expenses75,709 76,380 78,811 81,675

Total expenses

540,034 552,526 567,271 582,964

PROJECTED NET OPERATING INCOME3 4 5 6

$1,365,000 $1,566,107 $1,596,586 $1,648,583 78,555 26,643 43,406 51,226

$70,625 $15,256 $19,189 $19,670 $1,514,180 $1,608,006 $1,659,181 $1,719,479

0 80,400 82,959 85,974 1,514,180 1,527,606 1,576,222 1,633,505

464,325 476,146 488,460 501,289 75,709 76,380 78,811 81,675

$974,146 $975,080 $1,008,951 $1,050,541

(years 1 to 6)

Chapter 11Basic Investment Analysis

Data Input Box:Purchase price $8,500,000 Resale Price $9,700,000

BEFORE TAX CASH FLOW FROM OPERATIONS:Year 0 1 2 3

Purchase price ($8,500,000)

922,750 948,568 974,146 Sales PriceCash flow ($8,500,000) 922,750 948,568 974,146

IRR 13.46%

Discount rate 14.00%

Present Value of Cash flows $8,336,061.59

Spreadsheet Assumptions: 5 year holding period.

Net Operating Income (NOI) (from Ch11_Lease)

Chapter 11Basic Investment Analysis

BEFORE TAX CASH FLOW FROM OPERATIONS:4 5

975,080 1,008,951 9,700,000

975,080 10,708,951

Chapter 11After Tax Investment Analysis

Also assumes land costs to be 15% of purchase price.

Data Input Box:Purchase price 8500000 Tax Considerations:Building Value 7225000 Depreciation (in years)Ordinary income tax rate 0.36 Capital gains tax rateLoan-to-Value 0.7 Depreciation recaptureLoan Interest 0.1Loan term 20 years Building Square Footage:Payments per year 12 GrossResale Price 9700000 NetHolding Period 5 yearsSelling costs 0 of sale priceEquity discount rate 0.13Reinvestment rate 0.06

Equity 2,550,000 Loan 5,950,000 Annual Loan Payment 689,025 Mortgage Balance 5,343,245 year 5

SUMMARY LOAN INFORMATION:End of Year 1 2 3

Payment 689,025 689,025 689,025 Mortgage Balance 5,851,543 5,742,776 5,622,620 Interest 590,569 580,259 568,869 Principal 98,457 108,767 120,156

TAXABLE INCOME & AFTER-TAX CASH FLOW FROM OPERATIONS:Taxable Income (Loss):

922,750 948,568 974,146 Less: Interest 590,569 580,259 568,869 Depreciation 185,256 185,256 185,256 Taxable Income (Loss) 146,925 183,053 220,020 Tax (Savings) at 36% 52,893 65,899 79,207

Cash flow from operations:Net Operating Income (NOI) $922,750 $948,568 $974,146 Less Debt Service (DS) 689,025 689,025 689,025

Spreadsheet Assumptions: 5 year holding period. Assumes passive losses used in year they are incurred. No PAL limitations considered.

Net Operating Income (NOI) (from Ch11_Lease)

Before Tax Cash Flow $233,725 $259,542 $285,121 Less Tax 52,893 65,899 79,207 After-tax Cash Flow $180,832 $193,643 $205,913

AFTER-TAX CASH CLOW FROM SALE IN YEAR 5:Sales Price 9,700,000 Sales costs 0 Mortgage Balance 5,343,245 Before-tax cash flow 4,356,755

Original Cost Basis 8,500,000 Accumulated Depreciation 926,282 Adjusted Basis 7,573,718

Capital Gain 2,126,282 Depreciation recapture 926,282 Price appreciation 1,200,000

Tax on price appreciation 180,000 Tax on depreciation recapture 231,571 Total capital gain tax 411,571 After-Tax Cash Flow from Sale 3,945,184

CASH FLOW SUMMARYBTIRR on Equity

Year 0 1 2Before-Tax Cash Flow ($2,550,000) $233,725 $259,542 After-Tax Cash Flow ($2,550,000) $180,832 $193,643

Before-Tax IRR (BTIRR) 20.08%After-Tax IRR (ATIRR) 15.75%

Effective Tax Rate 21.57%

AFTER-TAX NET PRESENT VALUE

$696,943

2,141,288 Total Present Value 2,838,231 Less Original Equity Investment (2,550,000)After-Tax Net Present Value 288,231

Modified AT IRR (using reinvestment rate) 14.73% (also called Adjusted IRR)

BEFORE-TAX INVESTMENT ANALYSIS MEASURESPrice/Gross Square Foot $85.00 Price/Net Square Foot $88.54 Capitalization Rate 10.86%

Set purchase price (C10) equal to Cell D87 to make "circular" and solve for value

PV of ATCFo

PV of ATCFs

First Year Debt Coverage Ratio (DCR) 1.34Modified IRR (6% reinvestment rate) 18.28%NPV (18% discount rate) 771,455 Profitablility Index (18% discount rate) 1.30 BT Equivalent Yield 24.61%

Chapter 11After Tax Investment Analysis

Data Input Box:

390.150.25

10000096000

SUMMARY LOAN INFORMATION:4 5

689,025 689,025 5,489,883 5,343,245

556,288 542,388 132,738 146,637

TAXABLE INCOME & AFTER-TAX CASH FLOW FROM OPERATIONS:

975,080 1,008,951 556,288 542,388 185,256 185,256 233,536 281,306

84,073 101,270

$975,080 $1,008,951 689,025 689,025

5 year holding period. Assumes passive losses used in year they are incurred. No PAL limitations considered.

$286,054 $319,925 84,073 101,270

$201,981 $218,655

CASH FLOW SUMMARY

3 4 5$285,121 $286,054 $4,676,680 $205,913 $201,981 $4,163,839

Chapter 12 Participation LoanLoan Analysis

No passive activity loss limitations (PALL) considered. Set all data cells that do not apply to zero.

Data Input Box:Purchase 1000000 Tax Considerations:NOI year 1 100000 Building ValueGrowth-NOI 0.03 DepreciationLoan-to-Value 0.7 Tax rateLoan Interest (Payment) 0.08Loan Interest (Accural) 0.08Loan Amortization Term 15 yearsLoan Due 15 yearsPayments per year 12Equity Participation 0.5 of NOIPartic. on Excess over 100000Equity Participation 0.45 of sales gainLand Lease Payment 0Appreciation rate 0.03Lender's Equity Ownership 0Holding Period 5 yearsSelling costs 0 of sale price

Equity $300,000 Loan 700,000 Annual Loan Payment 80,275 Annual Accrual Amount 80,275 Mortgage Balance 551,364 year 5

SUMMARY LOAN INFORMATION:End of Year 1 2 3Payment 80,275 80,275 80,275 Mortgage Balance 674,815 647,540 618,001 Interest 55,090 53,000 50,736 Principal 25,185 27,275 29,539

SUMMARY CASH FLOW INFORMATION:Year 1 2 3

NOI 100,000 103,000 106,090 Less Debt Service 80,275 80,275 80,275 Less Land Lease Payment 0 0 0 Before-tax Cash Flow 19,725 22,725 25,815 Equity Participation 0 1,500 3,045 Before-Tax Cash Flow 19,725 21,225 22,770

NOI 100,000 103,000 106,090 Less: Interest 55,090 53,000 50,736 Depreciation 32,727 32,727 32,727

Spreadsheet limitations: 5 year holding period. Assumes passive losses used in year they are incurred.

Participation 0 1,500 3,045 Less Land Lease Payment 0 0 0 Taxable Income 12,183 15,773 19,582 Tax (Savings) 3,411 4,417 5,483 After-Tax Cash Flow 16,314 16,809 17,287

CASH FLOW FROM SALE:Sale Price 1,159,274 Sales costs 0 Mortgage Balance 551,364 Before-tax Cash Flow 607,910 Participation in Gain 71,673 Before-tax cash flow 536,237

Sale Price 1,159,274 Sales Costs 0 Participation 71,673

Original Cost Basis 1,000,000 Accumulated Depreciation 163,636 Adjusted Basis 836,364

Capital Gain 251,237 Tax from Sale 70,346

After-Tax Cash Flow from Sale 465,891

EQUITY ANALYSIS:Year 0 1 2

BTCF after Participation (300,000) 19,725 21,225 BTIRR on Equity 18.36%

Year 0 1 2ATCF (300,000) 16,314 16,809 ATIRR on Equity 14.07%Effective Tax Rate 23.37%

PROPERTY ANALYSIS:Year 0 1 2

NOI (1,000,000) 100,000 103,000 BTIRR on Property 13.00%

Year 0 1 2ATCF-no loan (1,000,000) 81,164 83,324 ATIRR on Property 9.98%

Lender's Yield:Year 0 1 2

Debt service 80,275 80,275Loan balance

Participation 0 1,500Loan amount -700000Cash flows to lender -700000 80,275 81,775Lender's IRR 10.17%

Calculation of Lender's IRR:

Month Cash flow0 -700000 1 6689.56 2 6689.56 3 6689.56 4 6689.56 5 6689.56 6 6689.56 7 6689.56 8 6689.56 9 6689.56

10 6689.56 11 6689.56 12 6689.56 13 6814.56 14 6814.56 15 6814.56 16 6814.56 17 6814.56 18 6814.56 19 6814.56 20 6814.56 21 6814.56 22 6814.56 23 6814.56 24 6814.56 25 6943.31 26 6943.31 27 6943.31 28 6943.31 29 6943.31 30 6943.31 31 6943.31 32 6943.31 33 6943.31 34 6943.31 35 6943.31 36 6943.31 37 7075.93 38 7075.93 39 7075.93 40 7075.93 41 7075.93 42 7075.93 43 7075.93 44 7075.93

45 7075.93 46 7075.93 47 7075.93 48 7075.93 49 7212.52 50 7212.52 51 7212.52 52 7212.52 53 7212.52 54 7212.52 55 7212.52 56 7212.52 57 7212.52 58 7212.52 59 7212.52 60 630249.67

IRR 10.17%

Chapter 12 Participation LoanLoan Analysis


Data Input Box:

90000027.5 years0.28


80,275 80,275 586,010 551,364

48,284 45,629 31,991 34,646

SUMMARY CASH FLOW INFORMATION:4 5

109,273 112,551 80,275 80,275

0 0 28,998 32,276

4,636 6,275 24,362 26,001

109,273 112,551 48,284 45,629 32,727 32,727

5 year holding period. Assumes passive losses used in year they are incurred.

4,636 6,275 0 0

23,625 27,919 6,615 7,817

17,747 18,183

EQUITY ANALYSIS:3 4 5

22,770 24,362 562,238

3 4 517,287 17,747 484,074

PROPERTY ANALYSIS:3 4 5

106,090 109,273 1,271,825

3 4 585,548 87,840 1,179,128

Lender's Yield:3 4 5

80,275 80,275 80,275551,364

3,045 4,636 77,949

83,320 84,911 709,587

Chapter 12 Sale Leaseback of Land


Data Input Box:Asking Price 1000000 Tax Considerations:NOI year 1 100000 Building ValueGrowth-NOI 0.03 DepreciationLoan-to-Value 0.7 Tax rateLoan Interest (Payment) 0.1Loan Interest (Accural) 0.1Loan Amortization Term 15 yearsLoan Due 15 yearsPayments per year 12Equity Participation 0 of NOIPartic. on Excess over 0Equity Participation 0 of sales gainLand Lease Payment 7800Appreciation rate 0.03Lender's Equity Ownership 0Holding Period 5 yearsSelling costs 0 of sale price


SUMMARY LOAN INFORMATION:End of Year 1 2 3

Payment 81,240 81,240 81,240 Mortgage Balance 610,900 589,800 566,491 Interest 62,140 60,140 57,931 Principal 19,100 21,100 23,309

SUMMARY CASH FLOW INFORMATION:Year 1 2 3

NOI 100,000 103,000 106,090 Less Debt Service 81,240 81,240 81,240 Less Land Lease Payment 7,800 7,800 7,800 Before-tax Cash Flow 10,960 13,960 17,050 Equity Participation 0 0 0 Before-Tax Cash Flow 10,960 13,960 17,050

NOI 100,000 103,000 106,090 Less: Interest 62,140 60,140 57,931 Depreciation 32,727 32,727 32,727 Participation 0 0 0


Sale-Leaseback of Land: loan is calculated off of building value.

Less Land Lease Payment 7,800 7,800 7,800 Taxable Income (2,668) 2,332 7,632 Tax (Savings) (747) 653 2,137 After-Tax Cash Flow 11,707 13,307 14,913

CASH FLOW FROM SALE:Sale Price 1,043,347 Sales costs 0 Mortgage Balance 512,295 Before-tax Cash Flow 531,052 Participation in Gain 0 Before-tax cash flow 531,052

Sale Price 1,043,347 Sales Costs 0 Participation 0

Original Cost Basis 900,000 Accumulated Depreciation 163,636 Adjusted Basis 736,364



EQUITY ANALYSIS:Year 0 1 2

BTCF after Participation (270,000) 10,960 13,960 BTIRR on Equity 19.16%

Year 0 1 2ATCF (270,000) 11,707 13,307 ATIRR on Equity 14.98%Effective Tax Rate 21.80%

PROPERTY ANALYSIS:Year 0 1 2

NOI (1,000,000) 100,000 103,000 BTIRR on Property 11.24%

Year 0 1 2ATCF-no loan (1,000,000) 81,164 83,324 ATIRR on Property 7.80%

Effective Cost of Sale-Leaseback of LandYear 0 1 2

Land cash flows -100,000 7,800 7,800


Calculation of Land purchaser's IRR:

Month Cash flow0 -100000 1 650.00 2 650.00 3 650.00 4 650.00 5 650.00 6 650.00 7 650.00 8 650.00 9 650.00

10 650.00 11 650.00 12 650.00 13 650.00 14 650.00 15 650.00 16 650.00 17 650.00 18 650.00 19 650.00 20 650.00 21 650.00 22 650.00 23 650.00 24 650.00 25 650.00 26 650.00 27 650.00 28 650.00 29 650.00 30 650.00 31 650.00 32 650.00 33 650.00 34 650.00 35 650.00 36 650.00 37 650.00 38 650.00 39 650.00 40 650.00 41 650.00 42 650.00 43 650.00 44 650.00 45 650.00 46 650.00 47 650.00 48 650.00

49 650.00 50 650.00 51 650.00 52 650.00 53 650.00 54 650.00 55 650.00 56 650.00 57 650.00 58 650.00 59 650.00 60 116577.41

IRR 10.25%

Chapter 12 Sale Leaseback of Land


Data Input Box:

90000027.5 years0.28

SUMMARY LOAN INFORMATION:4 581,240 81,240

540,741 512,295 55,490 52,794 25,750 28,446

SUMMARY CASH FLOW INFORMATION:4 5

109,273 112,551 81,240 81,240

7,800 7,800 20,233 23,511

0 0 20,233 23,511

109,273 112,551 55,490 52,794 32,727 32,727

0 0


7,800 7,800 13,255 19,230

3,711 5,384 16,521 18,126

EQUITY ANALYSIS:3 4 517,050 20,233 554,563

3 4 514,913 16,521 463,223

PROPERTY ANALYSIS:3 4 5

106,090 109,273 1,155,898

3 4 585,548 87,840 1,047,592

Effective Cost of Sale-Leaseback of Land3 4 5

7,800 7,800 123,727

Chapter 12 Convertible Loan


Data Input Box:Asking Price 1000000NOI year 1 100000Growth-NOI 0.03Loan-to-Value 0.7Loan Interest (Payment) 0.085Loan Interest (Accural) 0.085Loan Amortization Term 30 yearsLoan Due 15 yearsPayments per year 12Equity Participation 0 of NOIPartic. on Excess over 0Equity Participation 0 of sales gainLand Lease Payment 0Appreciation rate 0.03Lender's Equity Ownership 0.65Holding Period 5 yearsSelling costs 0 of sale price

Equity $300,000 Loan 700,000 Annual Loan Payment 64,589 Annual Accrual Amount 64,589 Mortgage Balance 668,432 year

SUMMARY LOAN INFORMATION:End of Year 1 2

Payment 64,589 64,589 Mortgage Balance 694,708 688,949 Interest 59,297 58,829 Principal 5,292 5,759

SUMMARY CASH FLOW INFORMATION:Year 1 2

NOI 100,000 103,000 Less Debt Service 64,589 64,589 Less Land Lease Payment 0 0 Before-tax Cash Flow 35,411 38,411 Equity Participation 0 0 Before-Tax Cash Flow 35,411 38,411

NOI 100,000 103,000 Less: Interest 59,297 58,829 Depreciation 32,727 32,727 Participation 0 0 Less Land Lease Payment 0 0


Taxable Income 7,976 11,443 Tax (Savings) 2,233 3,204 After-Tax Cash Flow 33,178 35,207

CASH FLOW FROM SALE:Sale Price (net of portion transferred to lender)Sales costsMortgage BalanceBefore-tax Cash FlowParticipation in GainBefore-tax cash flow

Sale Price 1,159,274 Sales Costs 0 Participation 0


Capital Gain 322,910 Tax from Sale

After-Tax Cash Flow from Sale

EQUITY ANALYSIS:Year 0 1

BTCF after Participation (300,000) 35,411 BTIRR on Equity 18.40%

Year 0 1ATCF (300,000) 33,178 ATIRR on Equity 13.06%Effective Tax Rate 29.02%

PROPERTY ANALYSIS:Year 0 1

NOI (1,000,000) 100,000 BTIRR on Property 13.00%

Year 0 1ATCF-no loan (1,000,000) 81,164 ATIRR on Property 9.66%

Lender's Yield:Year 0 1

Debt service 64,589Loan balanceConversionLoan amount -700000

Cash flows to lender -700000 64,589Lender's IRR 10.40%


Month Cash flow0 -700000 1 5382.39 2 5382.39 3 5382.39 4 5382.39 5 5382.39 6 5382.39 7 5382.39 8 5382.39 9 5382.39

10 5382.39 11 5382.39 12 5382.39 13 5382.39 14 5382.39 15 5382.39 16 5382.39 17 5382.39 18 5382.39 19 5382.39 20 5382.39 21 5382.39 22 5382.39 23 5382.39 24 5382.39 25 5382.39 26 5382.39 27 5382.39 28 5382.39 29 5382.39 30 5382.39 31 5382.39 32 5382.39 33 5382.39 34 5382.39 35 5382.39 36 5382.39 37 5382.39 38 5382.39 39 5382.39 40 5382.39 41 5382.39 42 5382.39 43 5382.39 44 5382.39 45 5382.39 46 5382.39

47 5382.39 48 5382.39 49 5382.39 50 5382.39 51 5382.39 52 5382.39 53 5382.39 54 5382.39 55 5382.39 56 5382.39 57 5382.39 58 5382.39 59 5382.39 60 758910.54

IRR 10.40%

Chapter 12 Convertible Loan


Data Input Box:Tax Considerations:Building Value 900000Depreciation 27.5 yearsTax rate 0.28

5

SUMMARY LOAN INFORMATION:3 4 5

64,589 64,589 64,589 682,680 675,858 668,432

58,320 57,766 57,163 6,269 6,823 7,426

SUMMARY CASH FLOW INFORMATION:3 4 5

106,090 109,273 112,551 64,589 64,589 64,589

0 0 0 41,501 44,684 47,962

0 0 0 41,501 44,684 47,962

106,090 109,273 112,551 58,320 57,766 57,163 32,727 32,727 32,727

0 0 0 0 0 0


15,043 18,779 22,661 4,212 5,258 6,345

37,289 39,426 41,617

CASH FLOW FROM SALE:405,746

0 0

405,746 0

405,746

90,415

315,331

EQUITY ANALYSIS:2 3 4 5

38,411 41,501 44,684 453,708

2 3 4 535,207 37,289 39,426 356,948

PROPERTY ANALYSIS:2 3 4 5

103,000 106,090 109,273 1,271,825

2 3 4 583,324 85,548 87,840 1,159,059

Lender's Yield:2 3 4 5

64,589 64,589 64,589 64,5890

753,528

64,589 64,589 64,589 818,117

Chapter 12Accrual Loan


Capital Gain Tax Rate assumed same as Ordinary Income Tax Rate

Data Input Box:Asking Price 1000000 Tax Considerations:NOI year 1 100000 Building Value 900000Growth-NOI 0.03 Depreciation 27.5Loan-to-Value 0.7 Tax rate 0.28Loan Interest (Payment) 0.08Loan Interest (Accural) 0.1Loan Amortization Term 30 yearsLoan Due 15 yearsPayments per year 12Appreciation rate 0.03Holding Period 5 yearsSelling costs 0 of sale price


SUMMARY LOAN INFORMATION:End of Year 1 2 3 4

Payment 61,636 61,636 61,636 61,636 Mortgage Balance 708,758 718,433 729,121 740,928 Interest 70,394 71,311 72,324 73,444 Principal (8,758) (9,675) (10,688) (11,807)

SUMMARY CASH FLOW INFORMATION:Year 1 2 3 4

NOI 100,000 103,000 106,090 109,273 Less Debt Service 61,636 61,636 61,636 61,636

Before-Tax Cash Flow 38,364 41,364 44,454 47,636

NOI 100,000 103,000 106,090 109,273 Less: Interest 70,394 71,311 72,324 73,444 Depreciation 32,727 32,727 32,727 32,727 Taxable Income (3,121) (1,039) 1,038 3,102 Tax (Savings) (874) (291) 291 869 After-Tax Cash Flow 39,238 41,655 44,163 46,768


Negative Amortization: requires a number greater than zero for "Loan Interest (Accural)".

CASH FLOW FROM SALE:Sale Price (received by investor) 1,159,274 Sales costs 0 Mortgage Balance 753,972 Before-tax Cash Flow 405,302

Before-tax cash flow 405,302

Sale Price 1,159,274 Sales Costs 0




EQUITY ANALYSIS:Year 0 1 2 3

BTCF after Participation (300,000) 38,364 41,364 44,454 BTIRR on Equity 19.27%

Year 0 1 2 3ATCF (300,000) 39,238 41,655 44,163 ATIRR on Equity 15.25%Effective Tax Rate 20.88%

PROPERTY ANALYSIS:Year 0 1 2 3

NOI (1,000,000) 100,000 103,000 106,090 BTIRR on Property 13.00%

Year 0 1 2 3ATCF-no loan (1,000,000) 81,164 83,324 85,548 ATIRR on Property 9.66%

Lender's Yield:Year 0 1 2 3

Debt service 61,636 61,636 61,636Loan balanceLoan amount -700000Cash flows to lender -$700,000 $61,636 $61,636 $61,636Lender's IRR 10.00%


Month Cash flow0 -700000 1 5136.35 2 5136.35 3 5136.35 4 5136.35 5 5136.35 6 5136.35 7 5136.35 8 5136.35 9 5136.35

10 5136.35 11 5136.35 12 5136.35 13 5136.35 14 5136.35 15 5136.35 16 5136.35 17 5136.35 18 5136.35 19 5136.35 20 5136.35 21 5136.35 22 5136.35 23 5136.35 24 5136.35 25 5136.35 26 5136.35 27 5136.35 28 5136.35 29 5136.35 30 5136.35 31 5136.35 32 5136.35 33 5136.35 34 5136.35 35 5136.35 36 5136.35 37 5136.35 38 5136.35 39 5136.35 40 5136.35 41 5136.35 42 5136.35 43 5136.35 44 5136.35 45 5136.35 46 5136.35 47 5136.35 48 5136.35 49 5136.35 50 5136.35 51 5136.35

52 5136.35 53 5136.35 54 5136.35 55 5136.35 56 5136.35 57 5136.35 58 5136.35 59 5136.35 60 759108.54

IRR 10.00%

Chapter 12Accrual Loan


Data Input Box:

years

SUMMARY LOAN INFORMATION:5

61,636 753,972

74,680 (13,044)

SUMMARY CASH FLOW INFORMATION:5

112,551 61,636

50,915

112,551 74,680 32,727

5,144 1,440

49,474


EQUITY ANALYSIS:4 5

47,636 456,217

4 546,768 364,361

PROPERTY ANALYSIS:4 5

109,273 1,271,825

4 587,840 1,159,059

Lender's Yield:4 5

61,636 61,636753,972

$61,636 $815,608

Chapter 13Partioning the IRR and Calculating Expected Returns and Variance

Partitioning the IRR

Year Cash Flow Present Value1 214,025 $178,890 2 239,960 167,643 3 266,413 155,570 4 284,764 138,989 5 321,796 131,280

Total $772,373

Year Cash Flow Present Value5 4,356,755 1,777,383

$772,373

1,777,383Total Present Value $2,549,756

Ratio of Present Values

30%

70%

Calculating Variance of Returns*Numbers from Exhibit 10-11

Office Building

Scenario Return (or R) Probability (P) (Return x Probability)Pessimistic 6.17% 25% 1.54%Most Likely 19.64% 50% 9.82%Optimistic 28.64% 25% 7.16%

Expected Return 18.52%Variance 0.64%

Standard Deviation 8.02%

Apartment Building

Scenario Return (or R) Probability (P) (Return x Probability)

Spreadsheet Assumptions: Use Exhibit 10-11 which is only in text.

Present Value of Before-tax Cash Flow from Operations (BFTCFo)

Present Value on Before-tax Cash Flow from Sale (BTCFs)

PV of BTCFo

PV of BTCFs

BTCFo to Total Present Value

BTCFs to Total Present Value

Pessimistic 10% 25% 2.50%Most Likely 15% 50% 7.50%Optimistic 20% 25% 5.00%



Hotel

Scenario Return (or R) Probability (P) (Return x Probability)Pessimistic 5.00% 25% 1.25%Most Likely 20% 50% 10.00%Optimistic 35% 25% 8.75%



SUMMARYProperty Expected Return Risk

Office 18.52% 8.02%Apartment 15.00% 3.61%

Hotel 20.00% 10.71%

Chapter 13Partioning the IRR and Calculating Expected Returns and Variance

Calculating Variance of Returns

Office Building

R - Expected R-12.35% 0.3815%1.12% 0.0062%

10.12% 0.2559%

18.52%0.64%8.02%

Apartment Building

R - Expected R

P x (R-Expected R)2

P x (R-Expected R)2

-5.00% 0.0625%-3.52% 0.0620%1.48% 0.0055%

15.00%0.13%3.61%

Hotel

R - Expected R-13.52% 0.4571%1.48% 0.0109%

16.48% 0.6788%

20.00%1.15%

10.71%

P x (R-Expected R)2

Chapter 13Risk and Leverage

PessimisticYear 0 1 2 3

Purchase -100,000NOI 9,000 8,730 8,468ResaleTotal Cash Flo -100,000 9,000 8,730 8,468

IRR 4.33%

Most LikelyYear 0 1 2 3


IRR 7.27%

OptimisticYear 0 1 2 3


IRR 10.21%

No Loan

Scenario Return (or R) Probability (P) (Return x Probability)Pessimistic 4.33% 30% 1.30%Most Likely 7.27% 50% 3.64%Optimistic 10.21% 20% 2.04%



Loan to value 70.00%Interest rate 6.00%Loan term 25 years

PessimisticYear 0 1 2 3

Purchase -100,000Loan 70,000NOI 9,000 8,730 8,468Payment -5,476 -5,476 -5,476ResaleLoan balanceTotal Cash Flo -30,000 3,524 3,254 2,992

IRR -0.45%

Most LikelyYear 0 1 2 3


IRR 10.22%

OptimisticYear 0 1 2 3


IRR 18.59%

Loan

Scenario Return (or R) Probability (P) (Return x Probability)Pessimistic -0.45% 30% -0.13%Most Likely 10.22% 50% 5.11%Optimistic 18.59% 20% 3.72%



Chapter 13Risk and Leverage

Pessimistic4 5 6

8,214 7,968 7,72977,286

8,214 85,254

Most Likely4 5 6

9,000 9,000 9,00090,000

9,000 99,000

Optimistic4 5 6

9,835 10,130 10,433104,335

9,835 114,464

No Loan

R - Expected R-2.64% 0.02%0.29% 0.00%3.23% 0.02%

P x (R-Expected R)2

Pessimistic4 5 6

8,214 7,968 7,729-5,476 -5,476

77,286-62,808

2,738 16,970

Most Likely4 5 6

9,000 9,000 9,000-5,476 -5,476

90,000-62,808

3,524 30,716

Optimistic4 5 6

9,835 10,130 10,433-5,476 -5,476

104,335-62,808

4,359 46,181

Loan

R - Expected R-7.43% 0.17%3.24% 0.05%

11.62% 0.27%

P x (R-Expected R)2

Chapter 13Retail Example

Input AssumptionsBuilding Name Westgate Shopping Center

Purchase price $ 8,500,000.00 State USA Building Size (SF) $ 100,000.00

Analysis Begin Date 7/1/2000Holding Period 5Discount Rate 11.00%Terminal Rate 10.50%Selling Cost 3.00%

Tenant 1 Tenant 2Name Drug Store FoodStore4Tenant Size 25,000 60,000 Rent SF $12.00 $8.50 Lease Term (Yrs) 5 14 Market Rent $12.00 $9.00 Market Rent Increase 3.00% 3.00%Sales Volume/SFSales Annual ChangeBreakpoint/SFOverage %

MLA Lease Term 10 5 MLA Tenant Improvement $0.00 $0.00MLA Lease Commissions 0.00% 0.00%MLA TI Annual Change 0.00% 0.00%RecoveriesLease OnlyProperty Tax Net $0.00 NetInsurance Net $0.00 NetMaintenance Net $0.00 Net

Market Vacancy Rate 5.00%

% of EGI $ Amount $ per SFManagement Fee 6.00% $0 $0.00Property Tax 0.00% $40,000 $0.00Insurance 0.00% $0 $0.18Maintenance 0.00% $0 $0.75

Restaurant Sales Volume

$250.00 $257.50 $0.00

OutputsYear 1 2 3

Rental Income:Drug Store Rent $300,000 $300,000 $300,000 Drug Store Renewal Rent $0 $0 $0Drug Store Recoveries $33,250 $34,198 $35,172Food Store Rent $510,000 $510,000 $510,000 Food Store Renewal Rent $0 $0 $0Food Store Recoveries $79,800 $82,074 $84,413Restaurant Rent $75,000 $75,000 $0 Restaurant Renewal Rent $0 $0 $84,872Restaurant Recoveries $6,650 $6,840 $0Restaurant Overage Rent $6,250 $8,125 $0Vacant Space 1 Rent $80,000 $80,000 $80,000 Vacant Space 1 Renewal Rent $0 $0 $0Vacant Space 1 Recoveries $6,650 $6,840 $7,034Vacant Space 2 Rent $80,000 $80,000 $80,000 Vacant Space 2 Renewal Rent $0 $0 $0Vacant Space 2 Recoveries $0 $6,840 $7,034Total Income $1,177,600 $1,189,915 $1,188,526

Vacant Space Vacancy $80,000 $0 $0 General Vacancy $58,880 $59,496 $59,426 Effective Gross Income $1,038,720 $1,130,419 $1,129,100

Management Fee $62,323 $67,825 $67,746 Property Tax $40,000 $41,000 $42,025 Insurance $18,000 $18,540 $19,096 CAM $75,000 $77,250 $79,568 Total Expenses $195,323 $204,615 $208,435 NOI $843,397 $925,804 $920,665

Vacant Space TIs $50,000 $50,000 $0In-Line Space TIs $0 $0 $26,523Total TIs $50,000 $50,000 $26,523

Vacant Space Leasing Commis $12,000 $12,000 $0In-Line Space Leasing Commis $0 $0 $10,185Total Leasing Commissions $12,000 $12,000 $10,185

Cash Flow from Operations $781,397 $863,804 $883,958

Cash flow from ResaleResale $8,984,768 Selling Cost $269,543 Net Resale $8,715,225

Total Cash FlowYear 0 1 2

Cash flow ($8,500,000) $781,397 $863,804 IRR 10.48%

Partitioning the IRR:Using IRR as a discount rate:PV of Cash flow from Operatio $3,204,921 37.70%PV of Cash Flow from Resale 5,295,079 62.30%Total PV $8,500,000 100.00%

Chapter 13Retail Example

Input Assumptions

Tenant 3 Vacant SpaceRestaurant # Leases 2 Total Space 5,000 Space per Lease 5,000 10,000

$15.00 Rent SF $16.00 2 Lease Term (Yrs) 3

$16.00 Market Rent $16.003.00% Market Rent Incre 3.00%

$250.00 Period 2nd Lease 13.00%

$225.005.00%

3 $5.00 $10.00

4.00% 5.00%3.00% 3.00%

$0.00 Net $0.00 Net $0.00$0.00 Net $0.00 Net $0.00$0.00 Net $0.00 Net $0.00

Change %0.00%2.50%3.00%3.00%

$0.00 $0.00 $0.00

Outputs4 5 6

$300,000 $300,000 $0 $0 $0 $347,782

$36,175 $37,206 $0$510,000 $510,000 $510,000

$0 $0 $0$86,820 $89,295 $91,841

$0 $0 $0 $87,418 $90,041 $92,742

$0 $0 $0$0 $0 $0

$0 $0 $0 $87,418 $90,041 $92,742

$0 $0 $0$80,000 $0 $0

$0 $90,041 $92,742$7,235 $0 $0

$1,195,066 $1,206,623 $1,227,849

$0 $0 $0 $59,753 $60,331 $61,392

$1,135,312 $1,146,292 $1,166,457

$68,119 $68,778 $69,987 $43,076 $44,153 $45,256 $19,669 $20,259 $20,867 $81,955 $84,413 $86,946

$212,818 $217,602 $223,056 $922,494 $928,690 $943,401

$0 $0$27,318 $28,138$27,318 $28,138

$0 $0$10,490 $10,805$10,490 $10,805

$884,686 $889,747

Total Cash Flow3 4 5

$883,958 $884,686 $9,604,972

Chapter 13Industrial Example

InputsBuilding Name Worthington Distribution CenterAddressCity Anywhere State USABuilding Size (SF) 140,000

Analysis Begin Date 6/1/2000Holding Period 5Discount Rate 10.50%Terminal Cap Rate 9.75%Selling Cost 3.00%

Tenant 1Name Electric SupplyTenant Size 50,000Rent SF $6.00 Lease Term (Yrs) 3 At Expiration Renew

Market Leasing AssumptionRent Annual Change 3.00% Tenant Improvement Annual Change

Lease Term Renewal Prob.New 5 70.0%RenewalWeighted

Market RentMarket Rent 1 - Electric Supply $7.10 $355,136Market Rent 1 - Sign Co. $7.43 $315,618Market Rent 1 - Computer Dist $7.48 $355,520

% of EGI $ AmountManagement Fee 5.00% $0Property Tax 0.00% $23,000Insurance 0.00% $0Maintenance 0.00% $0Roof Repair (year 1) $45,000

OutputsYear 1 2

Income:Electric Supply Rent $300,000 $300,000 Electric Supply Market Rent $0 $0Sign Company Rent $276,250 $276,250 Sign Company Market Rent $0 $0Computer Dist. Rent $273,125 $273,125 Computer Dist. Market Rent $0 $0Total Income $849,375 $849,375 Turnover Vacancy $0 $0Effective Gross Income $849,375 $849,375

Expenses:Management Fee $42,469 $42,469 Property Tax $23,000 $23,575 Insurance $21,000 $21,840 CAM $28,000 $28,840 Total $114,469 $116,724

Cash Flow:NOI $734,906 $732,651 Tenant Improvements $0 $0Leasing Commissions $0 $0Total TI and LC $0 $0Capital Costs $45,000 0Cash Flow $689,906 $732,651

PV Factors 0.90498 0.81898 Present Value of Cash Flow $624,350 $600,030

Resale Calculations:Resale $9,137,730 Selling Cost $274,132 Net Resale $8,863,598

PV Factor 0.60700

PVResale $5,380,203

Chapter 13Industrial Example

Inputs

Tenant 2 Tenant 3Sign Company Computer Dist.

42,500 47,500 $6.50 $5.75

2 4 Vacate Market

Tenant Improvement Annual Change 3.00%

Months Vacant Market RentLeasing Tenant

Commissions Improvements10 $7.00 3.00% $5.00

0 $6.50 1.00% $2.003 $6.65 1.60% $2.90

Start Date Market Turnover Vacate Turnover TI LC 4.00 4.00 $88,784 $295,947 $109,273 $17,757 3.00 3.83 $78,904 $263,015 $225,441 $47,343 5.00 5.25 $88,880 $296,267 $155,039 $28,442

$ per SF Change %$0.00 0.00%$0.00 2.50%$0.15 4.00%$0.20 3.00%

Outputs3 4 5 6

Income:$300,000 $0 $0 $0

$0 $355,136 $355,136 $355,136$0 $0 $0 $0

$315,618 $315,618 $315,618 $315,618$273,125 $273,125 $0 $0

$0 $0 $355,520 $355,520$888,743 $943,879 $1,026,274 $1,026,274 $263,015 $0 $88,880 $0

$625,728 $943,879 $937,394 $1,026,274

Expenses:$31,286 $47,194 $46,870 $51,314 $24,164 $24,768 $25,388 $26,022 $22,714 $23,622 $24,567 $25,550 $29,705 $30,596 $31,514 $32,460

$107,870 $126,181 $128,339 $135,345

Cash Flow:$517,858 $817,698 $809,055 $890,929 $225,441 $109,273 $155,039

$47,343 $17,757 $28,442$272,784 $127,030 $183,480

0 0 0$245,074 $690,669 $625,575

0.74116 0.67073 0.60700 $181,640 $463,256 $379,724

Value:PV Resale $5,380,203 PV Cash flows $2,248,999 Value $7,629,201

19.77%Implied Change in

Value

Chapter 14 Exhibit 5Return if Property Held additional 5 years

RETURN FOR PAST 5 YEARS

Data Input Box:Purchase Price / Property Value 200000 Tax Considerations:Land Value 40000 Depreciable Life (in years) 19Building Value 160000 Capital Gains Rate 0.28Operating Expenses (% of NOI) 0.5 Marginal Tax Rate 0.28NOI Growth 0.04Property Growth 0.03Loan-to-Value 0.75Loan Amount / Current Balance 150000Interest Rate 0.11Loan Term Remaining (in years) 25Payments per Year 12Holding Period / Yrs. Since Purch. 5Selling Costs 0.06Resale Value Year 5 250000

Equity 50000Loan 150000Annual Loan Payment 17642.03538Mortgage Balance 142,432 year 5

SUMMARY LOAN INFORMATION:End of Year 1 2 3 4 5

Payment 17,642 17,642 17,642 17,642 17,642 Mortgage Balance 148,799 147,458 145,963 144,294 142,432 Interest 16,441 16,302 16,146 15,973 15,780 Principal 1,201 1,340 1,496 1,669 1,862

CASH FLOW FROM OPERATIONS:Year 1 2 3 4 5

Rents 39,000 40,560 42,182 43,870 45,624 Less Operating Expenses 19500 20280 21091 21935 22812Net Operating Income 19500 20280 21091 21935 22812 Less Debt Service 17642 17642 17642 17642 17642 Before-Tax Cash Flow $ 1,858 $ 2,638 $ 3,449 $ 4,293 $ 5,170

Net Operating Income 19,500 20,280 21,091 21,935 22,812 Less: Interest 16,441 16,302 16,146 15,973 15,780 Depreciation 8,421 8,421 8,421 8,421 8,421 Taxable Income (loss) (5,362) (4,443) (3,476) (2,460) (1,389)Tax (1,501) (1,244) (973) (689) (389)

Spreadsheet Limitations: Ten year holding period.

Before-Tax Cash Flow 1,858 2,638 3,449 4,293 5,170 Less Tax (1,501) (1,244) (973) (689) (389)After-Tax Cash Flow $ 3,359 $ 3,882 $ 4,423 $ 4,982 $ 5,559

CASH FLOW FROM SALE:Sale Price (received by investor) 250,000 Sales costs 15,000 Mortgage Balance 142,432 Before-tax Cash Flow 92,568

Sale Price 250,000 Sales Costs 15,000


Capital Gain 77,105 Tax from Sale 21,589 After-Tax Cash Flow from Sale 70,978

CASH FLOW SUMMARY:End of Year 0 1 2 3 4

Before-Tax Cash Flow (50,000) 1,858 2,638 3,449 4,293 After-Tax Cash Flow (50,000) 3,359 3,882 4,423 4,982

Before-Tax IRR 18.26%After-Tax IRR 14.83%


RETURN FOR NEXT 5 YEARS

Data Input Box for Yrs 6-10:Current Value 250000 Tax Considerations:Original Cost Basis 200000 Marginal Tax RateBuilding Value (original) 160000 Capital Gains RateLand Value (original) 40000 Depreciable Life (in yrs)NOI Growth 0.03Operating Expenses (% of NOI) 0.5Property Growth 0.03Resale Value 289819Selling Costs 0.06Loan Amount / Current Balance 142432Interest Rate 0.11Loan Term Remaining (in years) 20Payments per Year 12Total Holding Period (in yrs) 10NO RENOVATION:Equity 57568Loan 142432Annual Pmt 17641.998852Mortg Bal 106,727 in year 10

6 7 8 9 1017,642 17,642 17,642 17,642 17,642

140,355 138,038 135,452 132,567 129,348 15,565 15,325 15,056 14,757 14,423

2,077 2,317 2,586 2,885 3,219

6 7 8 9 1047,449 48,873 50,339 51,849 53,405

23725 24436 25170 25925 2670223725 24436 25170 25925 26702 17642 17642 17642 17642 17642

$ 6,083 $ 6,794 $ 7,528 $ 8,283 $ 9,060

23,725 24,436 25,170 25,925 26,702 15,565 15,325 15,056 14,757 14,423

8,421 8,421 8,421 8,421 8,421 (261) 691 1,692 2,746 3,858

(73) 193 474 769 1,080

6,083 6,794 7,528 8,283 9,060 (73) 193 474 769 1,080

$ 6,156 $ 6,601 $ 7,054 $ 7,514 $ 7,980

Sale Price (received by investor) 289,819 Sales costs 17,389 Mortgage Balance 129,348 Before-tax Cash Flow 143,081


Org. Cost Basis 200,000 Accum Dep 84,211 Adj Basis 115,789


CASH FLOW SUMMARY:5 5 6 7 8 9

97,738 (70,978) 6,083 6,794 7,528 8,283 76,537 (70,978) 6,156 6,601 7,054 7,514




Data Input Box for Yrs 6-10:If Renovated:

0.28 NOI Yr 1 After Renovation 450000.28 NOI Growth 0.04

19 Terminal Cap Rate 0.1Renovation Costs 200000Loan Amount on Renovations 200000Total New Loan Amount 337500Interest Rate 0.11Loan Term (in years) 15Payments per Year 12Dep. Life of Renovation 31.5Holding Period 5Years Since Purchase 5

IF RENOVATED:Additional Equity 4932Loan 337500Annual Pmt 46032.18Mortg Bal 278,477 in year 5

Yr of Ren. 1 2 3 4 56 7 8 9 10

46,032 46,032 46,032 46,032 46,032 328,130 317,675 306,011 292,997 278,477

36,662 35,578 34,368 33,018 31,512 9,370 10,455 11,664 13,014 14,520

6 7 8 9 10 11- - - - -- - - - -

45000 46800 48672 50619 52644 54749 46032 46032 46032 46032 46032

$ (1,032) $ 768 $ 2,640 $ 4,587 $ 6,611

45,000 46,800 48,672 50,619 52,644 36,662 35,578 34,368 33,018 31,512 14,770 14,770 14,770 14,770 14,770 (6,432) (3,548) (466) 2,831 6,361 (1,801) (993) (131) 793 1,781

(1,032) 768 2,640 4,587 6,611 (1,801) (993) (131) 793 1,781

$ 769 $ 1,761 $ 2,770 $ 3,794 $ 4,830

Sale Price (received by investor) 547,494 Sales costs 32,850 Mortgage Balance 278,477 Before-tax Cash Flow 236,168




CASH FLOW SUMMARY:10 5 6 7 8152,142 ATCF assuming renovation - 769 1,761 2,770 107,202 ATCF assuming no renovation - 6,156 6,601 7,054

Incremental Cash Flow (4,932) (5,387) (4,840) (4,283)

IRR on Incremental Flows 37.47%

CASH FLOW SUMMARY:9 103,794 176,430 7,514 107,202

(3,719) 69,227

Chapter 14Marginal rate of return (MRR)

Data Input BoxCurrent property value 250000 Current NOI 47449 Original Building Value 160000Original Land Value 40000Years since purchased 5Current Depreciable life 19

Financing informationCurrent loan balance 142432 Interest rate 11.00%Remaining term 20 YEARS

Tax rate 28.00%

Growth rates for next 5 years:NOI 3.00%Property Value 3.00%

Loan constant 12.39%Payment $17,642

Equity $107,568

End of year 1 2 3 4 5Mortgate balance 140355 138037 135452 132567 129348

Calulation of After Tax Cash Flow from Sale if Sold Today

Sale PriceSale Costs 6.00%Mortgage balanceBefore tax cash flow

Sale price 250000Sale costs 15000


Original cost basis 200000 Accumulated depreciation 42105 Adjusted basis 157895

Capital gain 77105

Capital gains tax rate 28.00%

After tax cash flow from reversion

Calculation of After Tax Cash Flow from Operations if NOT soldYEAR 1 2 3 4 5

Rent $47,449 $48,873 $50,339 $51,849 $53,405Expenses 23,725 24,436 25,170 25,925 26,702Net operating income 23,725 24,436 25,170 25,925 26,702Debt service 17,642 17,642 17,642 17,642 17,642Before tax C.F. 6,083 6,794 7,528 8,283 9,060

Net Operating Income 23,725 24,436 25,170 25,925 26,702Interest 15,565 15,325 15,056 14,757 14,423Depreciaiton 8,421 8,421 8,421 8,421 8,421Taxable income -261 691 1,692 2,746 3,858Tax -73 193 474 769 1,080

Before tax C.F. 6,083 6,794 7,528 8,283 9,060Tax -73 193 474 769 1,080After tax cash flow 6,156 6,601 7,054 7,514 7,980

Calculation of After Tax Cash Flow from Sale

Sale price $257,500 $265,225 $273,182 $281,377 $289,819Morggage balance 140,355 138,037 135,452 132,567 129,348Selling expenses 15,450 15,914 16,391 16,883 17,389B.T.C.F. 101,695 111,274 121,339 131,928 143,081

Sale price 257,500 265,225 273,182 281,377 289,819Selling expenses 15,450 15,914 16,391 16,883 17,389Orig. Cost basis 200,000 200,000 200,000 200,000 200,000Accum Deprec. 50,526 58,947 67,368 75,789 84,211Adjusted basis 149,474 141,053 132,632 124,211 115,789

Total taxable gain 92,576 108,259 124,159 140,284 156,640

Capital gains tax 25,921 30,312 34,765 39,280 43,859

ATCF - Rev. 75,774 80,962 86,575 92,648 99,222

Cash Flow SummaryYear

Holding Period 0 1 2 3 41 -70,979 81,9302 -70,979 6,156 87,5633 -70,979 6,156 6,601 93,6284 -70,979 6,156 6,601 7,054 100,1625 -70,979 6,156 6,601 7,054 7,5146 -70,979 6,156 6,601 7,054 7,5147 -70,979 6,156 6,601 7,054 7,5148 -70,979 6,156 6,601 7,054 7,5149 -70,979 6,156 6,601 7,054 7,514

10 -70,979 6,156 6,601 7,054 7,514

Chapter 14Marginal rate of return (MRR)

6 7 8 9 10125757 121750 117280 112292 106727

Calulation of After Tax Cash Flow from Sale if Sold Today

250000 15000

142432 92568

21589

70979

Calculation of After Tax Cash Flow from Operations if NOT sold6 7 8 9 10

$55,007 $56,657 $58,357 $60,108 61911 27,503 28,329 29,178 30,054 30,95527,503 28,329 29,178 30,054 30,95517,642 17,642 17,642 17,642 17,642

9,861 10,687 11,536 12,412 13,313

27,503 28,329 29,178 30,054 30,95514,051 13,635 13,172 12,654 12,077

8,421 8,421 8,421 8,421 8,4215,032 6,272 7,586 8,978 10,4571,409 1,756 2,124 2,514 2,928

9,861 10,687 11,536 12,412 13,3131,409 1,756 2,124 2,514 2,9288,453 8,930 9,412 9,898 10,385

Calculation of After Tax Cash Flow from Sale

$298,513 $307,468 $316,693 $326,193 $335,979125,757 121,750 117,280 112,292 106,727

17,911 18,448 19,002 19,572 20,159154,845 167,270 180,411 194,330 209,093

298,513 307,468 316,693 326,193 335,97917,911 18,448 19,002 19,572 20,159

200,000 200,000 200,000 200,000 200,00092,632 101,053 109,474 117,895 126,316

107,368 98,947 90,526 82,105 73,684

173,234 190,073 207,165 224,516 242,136

48,505 53,220 58,006 62,865 67,798

106,340 114,050 122,405 131,465 141,295

Cash Flow Summary

5 6 7 8 9 10 IRR MRR15.43% 15.43%15.49% 15.56%15.54% 15.65%15.57% 15.69%

107,202 15.60% 15.71%7,980 114,793 15.61% 15.69%7,980 8,453 122,980 15.61% 15.65%7,980 8,453 8,930 131,818 15.61% 15.58%7,980 8,453 8,930 9,412 141,363 15.60% 15.49%7,980 8,453 8,930 9,412 9,898 151,680 15.58% 15.38%

Chapter 14Renovation versus no renovation

RETURN FOR PAST 5 YEARS

Data Input Box:Purchase Price / Property Value 200000 Tax Considerations:Land Value 40000 Depreciable Life (in years)Building Value 160000 Capital Gains RateOperating Expenses (% of NOI) 0.5 Marginal Tax Rate NOI Growth 0.04Property Growth 0.03Loan-to-Value 0.75Loan Amount / Current Balance 150000Interest Rate 0.11Loan Term Remaining (in years) 25Payments per Year 12Holding Period / Yrs. Since Purch. 5Selling Costs 0.06Resale Value Year 5 250,000

Equity 50,000 Loan 150,000 Annual Loan Payment 17,642 Mortgage Balance 142,432 year 5

SUMMARY LOAN INFORMATION:End of Year 1 2 3 4

Payment 17,642 17,642 17,642 17,642 Mortgage Balance 148,799 147,458 145,963 144,294 Interest 16,441 16,302 16,146 15,973 Principal 1,201 1,340 1,496 1,669

CASH FLOW FROM OPERATIONS:Year 1 2 3 4

Rents 39,000 40,560 42,182 43,870 Less Operating Expenses 19500 20280 21091 21935Net Operating Income 19500 20280 21091 21935 Less Debt Service 17642 17642 17642 17642 Before-Tax Cash Flow $ 1,858 $ 2,638 $ 3,449 $ 4,293

Net Operating Income 19,500 20,280 21,091 21,935 Less: Interest 16,441 16,302 16,146 15,973 Depreciation 8,421 8,421 8,421 8,421


Taxable Income (loss) (5,362) (4,443) (3,476) (2,460)Tax (1,501) (1,244) (973) (689)

Before-Tax Cash Flow 1,858 2,638 3,449 4,293 Less Tax (1,501) (1,244) (973) (689)After-Tax Cash Flow $ 3,359 $ 3,882 $ 4,423 $ 4,982

CASH FLOW FROM SALE:Sale Price (received by investor) 250,000 Sales costs 15,000 Mortgage Balance 142,432 Before-tax Cash Flow 92,568




CASH FLOW SUMMARY (Past 5 years)End of Year 0 1 2 3

Before-Tax Cash Flow (50,000) 1,858 2,638 3,449 After-Tax Cash Flow (50,000) 3,359 3,882 4,423


AFTER TAX NET PRESENT VALUE: Discount rate 13.00%

After-Tax Present Value from Operations 17,988After-Tax Present Value from Reversion 38,524Initial Loan Amount 150,000Total Present Value $ 203,675

After-Tax Present Value from Operations 15,150After-Tax Present Value from Reversion 38,524Original Equity Investment 50,000 After-Tax Net Present Value $ 3,675


RETURN FOR PAST 5 YEARS RETURN FOR NEXT 5 YEARS

Data Input Box: Data Input Box for Yrs 6-10:Current Value 250000

19 Original Cost Basis 2000000.28 Building Value (original) 1600000.28 Land Value (original) 40000

NOI Growth 0.03Operating Expenses (% of NOI) 0.5Property Growth 0.03Resale Value 289819Selling Costs 0.06Loan Amount / Current Balance 142432Interest Rate 0.11Loan Term Remaining (in years) 20Payments per Year 12Total Holding Period (in yrs) 10NO RENOVATION:Equity 57,568 Loan 142,432 Annual Pmt 17,642 Mortg Bal 106,727 in year

SUMMARY LOAN INFORMATION:5 6 7 8

17,642 17,642 17,642 17,642 142,432 140,355 138,038 135,452

15,780 15,565 15,325 15,056 1,862 2,077 2,317 2,586

CASH FLOW FROM OPERATIONS:5 6 7 8

45,624 47,449 48,873 50,339 22812 23725 24436 25170

22812 23725 24436 25170 17642 17642 17642 17642

$ 5,170 $ 6,083 $ 6,794 $ 7,528

22,812 23,725 24,436 25,170 15,780 15,565 15,325 15,056

8,421 8,421 8,421 8,421

(1,389) (261) 691 1,692 (389) (73) 193 474

5,170 6,083 6,794 7,528 (389) (73) 193 474

$ 5,559 $ 6,156 $ 6,601 $ 7,054

CASH FLOW FROM SALE:Sale Price (received by investor)Sales costsMortgage BalanceBefore-tax Cash Flow



Capital Gain 156,640 Tax from SaleAfter-Tax Cash Flow from Sale

CASH FLOW SUMMARY (Past 5 years) CASH FLOW SUMMARY ( Next 5 years)4 5 5 6 74,293 97,738 (70,978) 6,083 6,794 4,982 76,537 (70,978) 6,156 6,601




Data Input Box for Yrs 6-10:Tax Considerations: Data Input If Renovated:Marginal Tax Rate 0.28 NOI Yr 1 After Renovation 45000Capital Gains Rate 0.28 NOI Growth 0.04Depreciable Life (in yrs) 19 Terminal Cap Rate 0.1

Renovation Costs 200000Loan Amount on Renovations 200000Total New Loan Amount 337500Interest Rate 0.11Loan Term (in years) 15Payments per Year 12Dep. Life of Renovation 31.5Holding Period 5Years Since Purchase 5

IF RENOVATED:Additional Equity 4,932 Loan 337,500 Annual Pmt 46,032

10 Mortg Bal 278,477 in year

Yr of Ren. 1 2 3 49 10 6 7 8 9

17,642 17,642 46,032 46,032 46,032 46,032 132,567 129,348 328,130 317,675 306,011 292,997

14,757 14,423 36,662 35,578 34,368 33,018 2,885 3,219 9,370 10,455 11,664 13,014

9 10 6 7 8 951,849 53,405 - - - -

25925 26702 - - - -25925 26702 45000 46800 48672 50619 17642 17642 46032 46032 46032 46032

$ 8,283 $ 9,060 $ (1,032) $ 768 $ 2,640 $ 4,587

25,925 26,702 45,000 46,800 48,672 50,619 14,757 14,423 36,662 35,578 34,368 33,018

8,421 8,421 14,770 14,770 14,770 14,770

2,746 3,858 (6,432) (3,548) (466) 2,831 769 1,080 (1,801) (993) (131) 793

8,283 9,060 (1,032) 768 2,640 4,587 769 1,080 (1,801) (993) (131) 793

$ 7,514 $ 7,980 $ 769 $ 1,761 $ 2,770 $ 3,794

289,819 Sale Price (received by investor) 547,494 17,389 Sales costs 32,850

129,348 Mortgage Balance 278,477 143,081 Before-tax Cash Flow 236,168


Org. Cost 400,000 Accum Dep 115,957 Adj Basis 284,043

Capital Gain 230,601 43,859 Tax from Sale 64,568 99,222 After-Tax Cash Flow from Sale 171,599

CASH FLOW SUMMARY ( Next 5 years)8 9 10 5 6

7,528 8,283 152,142 ATCF assuming renovation - 769 7,054 7,514 107,202 ATCF assuming no renovation - 6,156

Incremental Cash Flow (4,932) (5,387)

IRR on Incremental Flows 37.47%


Data Input If Renovated:

5

510

46,032 278,477

31,512 14,520

10 11--

52644 54749 46032

$ 6,611

52,644 31,512 14,770

6,361 1,781

6,611 1,781

$ 4,830

7 8 9 101,761 2,770 3,794 176,430 6,601 7,054 7,514 107,202

(4,840) (4,283) (3,719) 69,227

Chapter 15 Lease versus Own and Sale-Leaseback Analysis

Opening costs are accured at time of purchase.

Data Input Box:Sales Revenue $1,500,000 Ownership Data:Cost of Goods Sold 50.00% of sales Property Value Today $2,000,000 Additional Overhead 200,000 Time Since Purchase 5Up-Front/Opening Costs 2,500,000 Purchase Price 1,800,000

Building Value 1,575,000 Lease Data: Land Value 225,000 Annual Payment 200,000 Resale Value year 15 3,000,000 Lease Term 15 years Loan-to-Value 76.06%Operating Expenses 50.00% of payment Loan Amount 1,369,000

Interest rate 10.00%Tax Considerations: Loan Term 10Corporate tax rate 30.00% Equity Investment 430999.56Depreciable Life (in yrs) 32 *No value after 15 years.

OPERATING CASH FLOW:Difference

Own Lease Own - LeaseSales $1,500,000 $1,500,000 0 Less: Cost of Goods Sold 750,000 750,000 0 Gross Income 750,000 750,000 0 Less: Overhead 200,000 200,000 0

550,000 550,000 0 Operating Expenses 100,000 100,000 0 Lease Payments 0 200,000 (200,000)Mortgage Interest Payment 136,900 0 136,900 Tax Depreciation 50,000 0 50,000 Taxable Income 263,100 250,000 13,100 Less: Tax 78,930 75,000 3,930 Income After-Tax 184,170 175,000 9,170

Plus: Depreciation 50,000 0 50,000 Less: Mortage Balance 0 0 0 After-Tax Cash Flow $234,170 $175,000 $59,170

CASH FLOW FROM SALE IF OWNED & SOLD AT END OF LEASE TERM:Resale 3,000,000

Spreadsheet Limitations: 15 years holding period. Assumes a interest-only loan. Make sure cells that do not apply are set to zero.

Net Income (before real estate)

Same for own and lease, so no difference.

Less: Mortgage Balance 1,369,000 Before-Tax Cash Flow 1,631,000 Resale 3,000,000 Less: Adjusted Basis 800,000 Capital Gain 2,200,000 Less: Tax 660,000

After-Tax Cash Flow $971,000

SUMMARY OF AFTER-TAX CASH FLOW DIFFERENCES OF OWN vs. LEASE:Outlay Cash Flow Reversion

Year 0 1 to 14 15Initial Investment (496,000)Operations 59,170 Sale 971,000 Total ($496,000) $59,170 $971,000

IRR on ATCF differences 14.10%

SUMMARY AFTER-TAX CASH FLOWS OF OPTIONS:Year 0 1 2 3

Own 0 234,170 234,170 234,170 Lease / Sale-Leaseback 496,000 175,000 175,000 175,000 Differnce of Own vs. Lease (496,000) 59,170 59,170 59,170 IRR on Own vs. Lease 14.10%

Additional cash flow from owning

This is the return from owning;


Opening costs are accured at time of purchase.

Data Input Box:

years

years

Additional Cash Flow

CASH FLOW IF SOLD TODAY:Resale 2,000,000

15 years holding period. Assumes a interest-only loan. Make sure cells that do not apply are set to zero.

Same for own and lease, so no difference.

Less: Mortgage Balance 1,369,000 Before-Tax Cash Flow 631,000 Resale 2,000,000 Less: Adjusted Basis 1,550,000 Capital Gain 450,000 Less: Tax 135,000

After-Tax Cash Flow $496,000

SUMMARY AFTER-TAX CASH FLOWS OF OPTIONS:4 5 6 7 8 9 10 11

234,170 234,170 234,170 234,170 234,170 234,170 234,170 234,170 175,000 175,000 175,000 175,000 175,000 175,000 175,000 175,000

59,170 59,170 59,170 59,170 59,170 59,170 59,170 59,170

SUMMARY AFTER-TAX CASH FLOWS OF OPTIONS:12 13 14 15

234,170 234,170 234,170 1,205,170 175,000 175,000 175,000 175,000

59,170 59,170 59,170 1,030,170

Chapter 16Financing Proposed Projects with Construction Loan

are data input cells. Set all data input cells that do not apply equal to zero (i.e. if there is constant growth, set the growth for "Yr2-Yr3" to zero.

Data Input Box:Property Appreciation 6.00% per year Holding Pd. (after con)Selling Costs 2.00% of sale price Permanent FinancingGross Building Area 120,000 Loan FeeGross Leasable Area 110,000 Loan Fee AmortSite Acq. & Closing 2,500,000 Loan AmortizationOn/Off Site Costs 850,000 Loan TermHard Costs 7,055,500 Interest RateSoft Costs 1,576,786 Payments per YearLeasing Comissions 45,300 Construction LoanRent 15 per GLA Loan AmountRent Growth 6.00% per year TermOverage Percentage 5.00% on gross sales % drawn first 4 mos.Overage on Excess over 200.00 per GLA % drawn last monthsAverage Sales 200.27 per GLA Interest RateSales Growth Yr 2 - Yr 3 316% Loan FeeSales Growth 4.00% per year Tax ConsiderationsTenant Reinmbursement 8.39 per GLA, yr 2 Marginal Tax RateTenant Reinb. Growth 4.00% per year Capital Gains RateExpenses 9.68 per GLA DepreciationExp. Growth Yr 2 - Yr 3 2.59% Capital ImprovementsExpenses Growth 4.16% per year Capital ImprovementsVacancy Yr 2 30.00% Tenant ImprovementsVacancy beginning Yr 3 5.00% Tenant Improvements

Total Cost BreakdownSite Acq. & Close 2,500,000 Total Project CostsOn/Off-Site Costs 850,000 Loan AmountHard Costs 7,055,500 Equity NeededSoft Costs 1,576,786

Total Project Costs $11,982,286 Perm Loan Fee Amount

CONSTRUCTION LOAN DRAWS & REPAYMENT:

End of Month Project Costs Interest Ending Balance01 $ 1,557,938 0 $ 1,557,938 2 1,557,938 15,579 3,131,454 3 1,557,938 31,315 4,720,706 4 1,557,938 47,207 6,325,851 5 259,656 63,259 6,648,766

Spreadsheet Limitations: Twelve month draw period, where first % draw is only for 4 months. All yellow colored cell

6 259,656 66,488 6,974,910 7 259,656 69,749 7,304,315 8 259,656 73,043 7,637,014 9 259,656 76,370 7,973,041

10 259,656 79,730 8,312,427 11 259,656 83,124 8,655,208 12 259,656 86,552 9,001,416

Total $ 8,309,000 $ 692,416

Yield to Lender

SUMMARY OF PERMANENT LOANYear of Loan 2 3 4

Payment 1,104,844 1,104,844 1,104,844 Mortgage Balance 8,682,752 8,616,260 8,541,335 Interest 1,045,836 1,038,352 1,029,919 Principal 59,008 66,492 74,925

SUMMARY OF DEPRECIABLE COSTSOn/Off Site Improvements 850,000 Hard Costs 7,055,500 Soft Costs 1,094,398 Total Depreciable Costs 8,999,898

BEFORE AND AFTER-TAX CASH FLOWS:Year 0 1 2

Site Acq. and Closing 2,500,000 Site Improvements 850,000 Hard Costs 7,055,500 Soft Costs* 447,282 *(less interest & loan fees)

Permanent Loan Fee 262,253 Construction Loan Fee 174,835 Construction Interest 692,416 Total Constr. Outflow 2,937,088 9,045,198

0 8,741,760 Total Equity Needed $ 2,937,088 $ 303,438

OPERATING PERIOD CASH FLOWSYear 1 2 3

Rent 1,650,000 1,749,000 Overage 29,997 124,788 Tenant Reimbursements 923,000 959,920 PGI 2,602,997 2,833,708

780,899 141,685 EGI 1,822,098 2,692,022 Total Expenses 1,064,800 1,092,402 Net Operating Income 757,298 1,599,620

1,104,844 1,104,844 Before-Tax Cash Flow (303,438) (347,546) 494,776

(Does not include leasing commissions, Permanent loan fees or construction loan fees)

Less: Total Draws

Less: Vacancy

Less: Debt Service

Net Operating Income 757,298 1,599,620 Less: Interest 1,045,836 1,038,352 Depreciation Capital Imprvmnt 257,140 257,140 Tenant Imprvmnt 257,140 183,671 Amortization: Constr Loan Fee 174,835 Perm Loan Fee 26,225 26,225 Leasing comm. 0 0 0 Taxable Income (174,835) (829,043) 94,231 Taxes (48,954) (232,132) 26,385

After-Tax Cash Flow (254,484) (115,414) 468,391

AFTER-TAX CASH FLOW FROM SALESale Price (received by investor) 16,035,002 Sales costs 320,700 Mortgage Balance 8,361,773 Before-tax Cash Flow 7,352,528

Original Cost Basis 11,982,286 Accum Dep & Amort 2,324,312 Adjusted Basis 9,657,974

Capital Gain 6,056,328 Tax from Sale 1,695,772 After-Tax Cash Flow from Sale 5,656,756

BEFORE and AFTER-TAX CASH FLOW SUMMARYYear 0 1 2

Before-Tax Cash Flow (2,937,088) (303,438) (347,546)After-Tax Cash Flow (2,937,088) (254,484) (115,414)

BTCF IRR 20.95%ATCF IRR 17.35%

Note: The calculation of taxable income differs slightly from the book for the following reasons:1) Leasing commissions were not amortized in the book as they should be as shown above.2) The amount in the book for depreciation of tenant improvements in year 5 was wrong in the book.

Chapter 16Financing Proposed Projects with Construction Loan

are data input cells. Set all data input cells that do not apply equal to zero (i.e. if there is constant growth, set the growth for "Yr2-Yr3" to zero.

Data Input Box:5 years

3.00% of loan10 years25 years10 years

0.1212

$ 8,309,000 12 months

75.00%25.00%12.00%

2.00%

28.00%28.00%

31.5 years - S/L90.00% of total

7 years - DDB10.00% of total

Total Cost Breakdown $ 11,982,286

8,741,760 3,240,526

$ 262,253

CONSTRUCTION LOAN DRAWS & REPAYMENT:

Payoff $ 174,835

0 (1,557,938)0 (1,557,938)0 (1,557,938)0 (1,557,938)0 (259,656)

Twelve month draw period, where first % draw is only for 4 months. All yellow colored cell

Lender's Cash Flow

0 (259,656)0 (259,656)0 (259,656)0 (259,656)0 (259,656)0 (259,656)

8,741,760 8,741,760

Yield to Lender 15.35%

SUMMARY OF PERMANENT LOAN5 6

1,104,844 1,104,844 8,456,908 8,361,773 1,020,417 1,009,709

84,427 95,135

BEFORE AND AFTER-TAX CASH FLOWS:3 4 5 6

OPERATING PERIOD CASH FLOWS4 5 6

1,853,940 1,965,176 2,083,087 129,779 134,970 140,369 998,317 1,038,250 1,079,780 2,982,036 3,138,396 3,303,236 149,102 156,920 165,162 2,832,934 2,981,476 3,138,074 1,137,847 1,185,183 1,234,487 1,695,087 1,796,294 1,903,587 1,104,844 1,104,844 1,104,844 590,243 691,450 798,743

1,695,087 1,796,294 1,903,587

1,029,919 1,020,417 1,009,709

257,140 257,140 257,140 131,194 93,710 66,936

26,225 26,225 26,225 0 0 0

250,609 398,802 543,576 70,170 111,665 152,201

520,073 579,785 646,541

BEFORE and AFTER-TAX CASH FLOW SUMMARY3 4 5 6

494,776 590,243 691,450 8,151,271 468,391 520,073 579,785 6,303,298

Note: The calculation of taxable income differs slightly from the book for the following reasons:1) Leasing commissions were not amortized in the book as they should be as shown above.2) The amount in the book for depreciation of tenant improvements in year 5 was wrong in the book.

Chapter 17 ExhibitsFinancing Land Development Projects*

Type Price Number TotalCluster 19,000 60 1,140,000 Standard 45,600 87 3,967,200 Creek 47,500 10 475,000

Totals 157 5,582,200

Available Financing42% of land acquisition 1,000,000

100% of improvement costs 2,640,000 12% Interest rate 3,640,000 Total to be financed

3 points 448,109 Interest Carry (calc. below)20% faster than revenue 4,088,109 Total Loan Amount

TARGET REVENUE: $4,651,833

DRAWS AND UNITS: Draws

Month Amount Months Cluster Standard0 1,000,000 01 600,000 1-3 0 02 600,000 4-6 2 23 600,000 7-12 4 34 300,000 13-18 3 65 300,000 19-24 1 56 300,000

Total 3,700,000 10 16

PRESENT VALUES, ACCELERATION, & RESALE PRICE:

Month Draw Cluster Standard Creek0 1,019,200 0 0 01 655,200 0 0 02 655,200 0 0 03 655,200 0 0 04 218,400 2 2 05 218,400 2 2 06 218,400 2 2 07 4 3 18 4 3 19 4 3 1

10 4 3 111 4 3 112 4 3 1

13 3 6 314 3 6 315 3 6 316 3 6 317 3 6 318 3 6 319 1 5 220 1 5 221 1 5 222 1 5 223 1 5 224 1 5 2

Total 3,640,000 54 90 36

Present Value 3,569,554

PV Draws 3,569,554 PV Revenue 5,880,209 PV Rev / PV Draw 60.7046%Acceleration 20.00%Release Price 72.8455%

LOAN SCHEDULE AND LENDER'S IRRPayments

Month Interest Total Principal Interest0 0 1,019,200 1 10,192 665,392 0 10,192 2 16,846 672,046 0 16,846 3 23,566 678,766 0 23,566 4 30,354 248,754 94,116 30,354 5 31,900 250,300 94,116 31,900 6 33,462 251,862 94,116 33,462 7 35,040 35,040 189,617 35,040 8 33,494 33,494 189,617 33,494 9 31,933 31,933 189,617 31,933

10 30,356 30,356 189,617 30,356 11 28,763 28,763 189,617 28,763 12 27,155 27,155 189,617 27,155 13 25,530 25,530 344,632 25,530 14 22,339 22,339 344,632 22,339 15 19,116 19,116 344,632 19,116 16 15,861 15,861 344,632 15,861 17 12,573 12,573 344,632 12,573 18 9,253 9,253 344,632 9,253 19 5,899 5,899 249,131 5,899 20 3,467 3,467 249,131 3,467 21 1,010 1,010 102,005 1,010 22 0 0 0 0 23 0 0 0 0 24 0 0 0 0

448,109 4,088,109 4,088,109 448,109

Lender's Yield 15.69%

DEVELOPER'S CASH FLOW, NPV AND IRR

Quarter 0 1 2 3Inflow:Sales 0 0 387,600 780,900 Loan Draw 1,019,200 1,965,600 655,200 0 Interest Draw 0 50,604 95,717 100,466 Total Inflow 1,019,200 2,016,204 1,138,517 881,366

Outflows:Site Purch. 2,400,000 Closing 100,000 Loan Fee 122,643 Loan Pmt. 0 282,349 568,850 Interest Cost 0 50,604 95,717 100,466 Direct Costs 19,200 1,965,600 655,200 Gen & Admin 26,250 26,250 26,250Prop. TaxSales Exp. 0 19,380 39,045 Total Outflow 2,641,843 2,042,454 1,078,896 734,612

Net Cash ($1,622,643) ($26,250) $59,621 $146,755

Net Present Value 40,056 15% discount rateInternal Rate of Return 16.64%


Land and Development Costs:Land 2,400,000 SiteDirect Costs 2,640,000 Site ClosingCommission 5% Site Improvements

Construction InterestConst. Loan Fee

Available Financing Total Direct CostsCluster Standard Creek13,840.64 33,217.53 34,601.60 Operating Expenses:

Total to be financed (calculated below) Selling CommissionsInterest Carry (calc. below) Property TaxesTotal Loan Amount General & Admin.

Total Indirect Costs

Total Project CostsDRAWS AND UNITS: - Loan Amount

Cumulative Total Equity Required

Creek UnitsPercent Financed

0 00 121 603 1322 180

180

PRESENT VALUES, ACCELERATION, & RESALE PRICE:Cumulative Monthly Cumulative MPVIF @ PV

Units Sales Sales 0.12 Draws Monthly Sales0 0 0 1.00000 1019200 00 0 0 .99010 648712.871 00 0 0 .98030 642289.972 00 0 0 .97059 635930.665 04 129,200 129,200 .96098 209878.107 1241598 129,200 258,400 .95147 207800.106 122929

12 129,200 387,600 .94205 205742.679 12171220 260,300 647,900 .93272 0 24278728 260,300 908,200 .92348 0 24038336 260,300 1,168,500 .91434 0 23800344 260,300 1,428,800 .90529 0 23564652 260,300 1,689,100 .89632 0 23331360 260,300 1,949,400 .88745 0 231003

Release Prices

72 473,100 2,422,500 .87866 0 41569584 473,100 2,895,600 .86996 0 41157996 473,100 3,368,700 .86135 0 407504

108 473,100 3,841,800 .85282 0 403470120 473,100 4,314,900 .84438 0 399475132 473,100 4,788,000 .83602 0 395520140 342,000 5,130,000 .82774 0 283087148 342,000 5,472,000 .81954 0 280284156 342,000 5,814,000 .81143 0 277509164 342,000 6,156,000 .80340 0 274762172 342,000 6,498,000 .79544 0 272041180 342,000 6,840,000 .78757 0 269348180 6,840,000 3,569,554 5,880,209

5,880,209

LOAN SCHEDULE AND LENDER'S IRRPayments

Total Balance Cash Flow1,019,200 (896,557)

10,192 1,684,592 (655,200)16,846 2,356,638 (655,200)23,566 3,035,404 (655,200)

124,470 3,190,042 (124,284)126,017 3,346,226 (124,284)127,579 3,503,972 (124,284)224,656 3,349,395 189,617 223,111 3,193,272 189,617 221,549 3,035,588 189,617 219,973 2,876,327 189,617 218,380 2,715,474 189,617 216,771 2,553,012 189,617 370,162 2,233,910 344,632 366,971 1,911,617 344,632 363,748 1,586,102 344,632 360,493 1,257,331 344,632 357,205 925,272 344,632 353,885 589,893 344,632 255,030 346,660 249,131 252,598 100,996 249,131 103,015 0 102,005

0 0 0 0 0 0 0 0 0

4,536,218

DEVELOPER'S CASH FLOW, NPV AND IRR

4 5 6 7 8

780,900 1,419,300 1,419,300 1,026,000 1,026,000 0

86,274 66,985 37,687 10,375 0 867,174 1,486,285 1,456,987 1,036,375 1,026,000

568,850 1,033,896 1,033,896 600,268 0 86,274 66,985 37,687 10,375 0

26,250 26,250 26,250 26,250 26,25043,750 43,750

39,045 70,965 70,965 51,300 51,300 764,169 1,198,096 1,168,798 688,194 121,300

$103,005 $288,189 $288,189 $348,182 $904,700

discount rate


Land and Development Costs:2,400,000

Site Closing 50,000 Site Improvements 2,640,000 Construction Interest 448,109 Const. Loan Fee 122,643

Total Direct Costs 5,660,753

Operating Expenses:Selling Commissions 279,110 Property Taxes 87,500 General & Admin. 210,000 Total Indirect Costs 576,610

Total Project Costs 6,237,363 - Loan Amount 4,088,109 Total Equity Required 2,149,253

Percent Financed 65.54%

Chapter 18

Initial InvestmentInvestors Capital Inc. -$45,000,000Property Developers Inc. -$5,000,000

Year Total Cash flow0 -$50,000,000 -$50,000,0001 $1,000,000 $1,000,0002 $2,000,000 $2,000,0003 $5,000,000 $5,000,0004 $6,000,000 $6,000,0005 $6,500,000 $81,500,000

IRR 14.81%

Year

1 $1,000,000 $1,000,000 $0 $02 $2,000,000 $2,000,000 $0 $03 $5,000,000 $2,250,000 $250,000 $2,500,0004 $6,000,000 $2,250,000 $250,000 $3,500,0005 $6,500,000 $2,250,000 $250,000 $4,000,000

Year0 -$45,000,000 -$5,000,0001 $1,000,000 $02 $2,000,000 $03 $3,500,000 $1,500,0004 $4,000,000 $2,000,0005 $70,150,834 $11,349,166

Initial Investment

Cash flow from Operations


Investors Capital Inc. return from operations

Property Developers Inc. return from operations

Remaining operating cash flow to be split

Investors Capital Inc.

Property Developers Inc.

IRR 13.22% 26.64%

Chapter 18

-$45,000,000$1,000,000 $0 $0 $1,000,000$2,000,000 $0 $0 $2,000,000$2,250,000 $250,000 $2,500,000 $3,500,000$2,250,000 $250,000 $3,500,000 $4,000,000$2,250,000 $250,000 $4,000,000 $61,801,668 $66,051,668

12.00%

Year01 $1,000,0002 $2,000,0003 $3,500,0004 $4,000,0005 $4,250,000 $45,000,000


Property Developers Inc. return from operations


Investors Capital Inc. from sale for 12% IRR

Investors Capital Inc. cash flow for 12% IRR

Investors Capital Inc. cash flow from Operations

Investors Capital Inc. return of initial investment

Chapter 18

Check-$45,000,000 -$5,000,000 $0

$1,000,000 $0 $0$2,000,000 $0 $0$3,500,000 $1,500,000 $0$4,000,000 $2,000,000 $0

$5,000,000 $8,198,332 $70,150,834 $11,349,166 $0

13.22% 26.64%

-$45,000,000$1,000,000$2,000,000$3,500,000$4,000,000

$16,801,668 $66,051,668

12.00%

Property Developers Inc. return of initial investment

Remaining cash flow from sale to be split

Investors Capital Inc. total cash flow


Investors Capital Inc. additional cash flow from Sale

Total Cash Flow

Chapter 18

Initial InvestmentInvestors Capital Inc. -$45,000,000Property Developers Inc. -$5,000,000

Year Total Cash flow0 -$50,000,000 -$50,000,0001 $1,000,000 $1,000,0002 $2,000,000 $2,000,0003 $5,000,000 $5,000,0004 $6,000,000 $6,000,0005 $6,500,000 $81,500,000

IRR 14.81%

Year

1 $1,000,000 $1,000,000 $0 $02 $2,000,000 $2,000,000 $0 $03 $5,000,000 $2,250,000 $250,000 $2,500,0004 $6,000,000 $2,250,000 $250,000 $3,500,0005 $6,500,000 $2,250,000 $250,000 $4,000,000

Year0 -$45,000,000 -$5,000,0001 $1,000,000 $02 $2,000,000 $03 $3,500,000 $1,500,0004 $4,000,000 $2,000,0005 $66,051,493 $15,448,507

Initial Investment


Cash flow from

Operations


Property Developers Inc. return from

operations




IRR 12.00% 32.94%

Chapter 18

-$45,000,000$1,000,000 $0 $0 $1,000,000$2,000,000 $0 $0 $2,000,000$2,250,000 $250,000 $2,500,000 $3,500,000$2,250,000 $250,000 $3,500,000 $4,000,000$2,250,000 $250,000 $4,000,000 $53,602,986 $57,852,986

9.38%

Year01 $1,000,0002 $2,000,0003 $3,500,0004 $4,000,0005 $4,250,000 $45,000,000

Investors Capital Inc. return from

operations

Property Developers Inc. return

from operations


Investors Capital Inc. from sale for

12% IRR

Investors Capital Inc. cash flow for

12% IRR

Investors Capital Inc. cash flow

from Operations

Investors Capital Inc. return of initial

investment

Chapter 18

Check-$45,000,000 -$5,000,000 $0

$1,000,000 $0 $0$2,000,000 $0 $0$3,500,000 $1,500,000 $0$4,000,000 $2,000,000 $0

$5,000,000 $16,397,014 $66,051,493 $15,448,507 $0

12.00% 32.94%

-$45,000,000$1,000,000$2,000,000$3,500,000$4,000,000

$8,602,986 $57,852,986

9.38%

Property Developers Inc. return of initial

investment

Remaining cash flow

from sale to be split


total cash flow

Property Developers

Inc.

Investors Capital Inc. additional cash flow from

SaleTotal Cash

Flow

Chapter 18Partnership Analysis

Data Input Box:Land 525,000 Income Considerations:Improvements $ 3,475,000 General PartnerFunding Required 4,180,000 Gen Partner Gain AllocationLoan Amount 3,000,000 Limited PartnerInterest Rate 12.00% per year Lim Partner Gain AllocationLoan Term 25 PGI (year 2)Payments per Year 12 Vacancy & LossHolding Period 5 years Operating Expense (yr 2)Syndication Expense 100,000 Income GrowthPoints 60,000 Resale PricePoints Term 25 Selling CostsPoints Payment 2,400 per year Tax Considerations:Organization Fee 20,000 DepreciationOrg Fee Term 5 General PartnerOrg Fee Payment 4,000 per year Limited Partner

Total: General Partner:Equity 1,180,000 EquityAnnual Loan Payment 379,161 Payment

SUMMARY LOAN INFORMATION:End of Year 2 3 4Payment 379,161 379,161 379,161 Mortgage Balance 2,979,750 2,956,931 2,931,218 Interest 358,910 356,342 353,448 Principal 20,250 22,819 25,713

SUMMARY OF POINTS INFORMATION:End of Year 2 3 4Payment 2,400 2,400 2,400 Balance 57,600 55,200 52,800

DISTRIBUTION OF BEFORE-TAX CASH FLOW:Year 2 3 4Potential Gross Income 750,000 772500 795675

37500 38625 39784Effective Gross Income 712,500 733,875 755,891

249375 256856 264562Net Operating Income 463,125 477,019 491,329

379,161 379,161 379,161 Before-Tax Cash Flow 83,964 97,858 112,169 Distribution:General Partner BTCF 4,198 4,893 5,608

Less: Vancancy & Loss

Less: Operationg Expenses

Less: Debt Service

Limited Partner BTCF 79,766 92,965 106,560

DISTRIBUTION OF TAXABLE INCOME:Net Operating Income 463,125 477,019 491,329

358,910 356,342 353,448 Depreciation 110,317 110,317 110,317 Organization Fee 4,000 4,000 4,000 Points 2,400 2,400 2,400 Taxable Income: (12,503) 3,959 21,164 Distribution:General Partner BTCF (625) 198 1,058 Limited Partner BTCF (11,878) 3,761 20,106

DISTRIBUTION OF TAXABLE GAIN FROM SALE:Sale Price $ 5,000,000 Selling Costs 250,000 Original Cost Basis $4,100,000

551,587 Adjusted Basis 3,548,413 Total Taxable Gain 1,201,587

Genral Partner's Gain $120,159 Limited Partners' Gain $1,081,429

CAPITAL ACCOUNTS PRIOR TO DISTRIBUTION OF CASH FLOW FROM SALE:End of Year 1 2 3

Limited PartnersEquity 1,121,000

0 3,761 (11,878) 0

(79,766) (92,965)Total for Year 1,121,000 (91,644) (89,204)Balance $ 1,121,000 1,029,356 940,153

General PartnerEquity 59,000

0 198 (625) 0

(4,198) (4,893)Total for Year 59,000 (4,823) (4,695)Balance $ 59,000 54,177 49,482

AFTER-TAX CASH FLOW & INTERNAL RATE OF RETURN:End of Year 1 2 3

General PartnerOperation:

Less: Interest

Less: Accumulated Depreciation

Plus: IncomeLess: LossPlus: Gain from SaleLess: Cash Distribution

Plus: IncomeLess: LossPlus: Gain from SaleLess: Cash Distribution

Before-Tax Cash Flow $ (59,000) 4,198 4,893 Taxable Income (625) 198 Taxes (175) 55 After-Tax Cash Flow $ (59,000) 4,373 4,837

Reversion:Before-Tax Cash FlowCapital GainsTaxesAfter-Tax Cash FlowTotal After-Tax Cash Flow $ (59,000) $ 4,373 $ 4,837

After-Tax Internal Rate of Return 22.24%

Limited PartnersOperation:Before-Tax Cash Flow (1,121,000) 79,766 92,965 Taxable Income (11,878) 3,761 Taxes (3,326) 1,053 After-Tax Cash Flow (1,121,000) 83,092 91,912

Reversion:Before-Tax Cash FlowCapital GainsTaxesAfter-Tax Cash FlowTotal After-Tax Cash Flow $(1,121,000) $ 83,092 $ 91,912

After-Tax Internal Rate of Return 13.15%

Chapter 18Partnership Analysis

Data Input Box:

5.00%10.00%95.00%90.00%

750,000 5.00% (of PGI)

35.00% (of EGI)3.00%

5,000,000 5.00%

31.5 years (S/L)28.00%28.00%

General Partner: Limited Partner:59,000 Equity 1,121,000 18,958 Payment 360,203


379,161 379,161 2,902,244 2,869,596

350,187 346,512 28,974 32,648

SUMMARY OF POINTS INFORMATION:5 6

2,400 2,400 50,400 48,000

DISTRIBUTION OF BEFORE-TAX CASH FLOW:5 6

819545 84413240977 42207

778,568 801,925 272499 280674

506,069 521,251 379,161 379,161 126,909 142,091

6,345 7,105

120,563 134,986

DISTRIBUTION OF TAXABLE INCOME:506,069 521,251 350,187 346,512 110,317 110,317

4,000 4,000 2,400 50,400

39,165 10,021

1,958 501 37,207 9,520

DISTRIBUTION OF TAXABLE GAIN FROM SALE:

CAPITAL ACCOUNTS PRIOR TO DISTRIBUTION OF CASH FLOW FROM SALE:4 5 6

Limited Partners

20,106 37,207 9,520 0 0 0

1,081,429 (106,560) (120,563) (134,986)

(86,455) (83,357) 955,963 853,698 770,341 1,726,304

General Partner

1,058 1,958 501 0 0 0

120,159 (5,608) (6,345) (7,105)(4,550) (4,387) 113,555 44,931 40,544 154,100

AFTER-TAX CASH FLOW & INTERNAL RATE OF RETURN:4 5 6

General Partner

5,608 6,345 7,105 1,058 1,958 501

296 548 140 5,312 5,797 6,964

$ 154,100 120,159

33,644 120,455

$ 5,312 $ 5,797 $ 127,419

Limited Partners

106,560 120,563 134,986 20,106 37,207 9,520

5,630 10,418 2,666 100,931 110,145 132,320

$ 1,726,304 1,081,429

3028001,423,504

$100,931 $110,145 $ 1,555,825

Chapter 19Mortgage Pass Through Security

Data Input Box:Number of mortgages in initial pool 40Average mortgage balance $25,000 Initial mortgage pool balance $1,000,000 Prepayment rate 10.00%Mortgage rate 10.00%Servicing and Guarantee Fee 0.5%Coupon rate 9.50%Market interest rate 9.50%

Issuance of 100 Mortgage Pass Through Securities (MPT)

(a) (b) (c) (d) (e)Total PrincipalGuarantee

Principal Principal and and Interest andPool due to Interest Pmts Pmts to IssuerService Fees

Year Balance Prepayment to Issuer (b)+(c) (a)x(0.5%)0 $1,000,000 1 837,255 100,000 162,745 262,745 5,000 2 691,873 83,725 145,381 229,107 4,186 3 562,186 69,187 129,688 198,875 3,459 4 446,710 56,219 115,476 171,695 2,811 5 344,142 44,671 102,568 147,239 2,234 6 253,358 34,414 90,784 125,198 1,721 7 173,431 25,336 79,927 105,263 1,267 8 103,692 17,343 69,739 87,082 867 9 43,946 10,369 59,746 70,115 518

10 0 0 48,340 48,340 220

Discount rate Price to Green Value of MPT9.50% $1,000,000 $25,000 8.50% $1,033,908 $25,848

10.50% $967,969 $24,199

Chapter 19Mortgage Pass Through Security

Issuance of 100 Mortgage Pass Through Securities (MPT)

(f) (g)Total Pmt toPayments Individualto Investors Investor

(d)-(e) (f)/40($25,000)

257,745 6,444 224,921 5,623 195,415 4,885 168,884 4,222 145,005 3,625 123,477 3,087 103,996 2,600

86,215 2,155 69,597 1,740 48,120 1,203

Chapter 20CMO

MORTGAGE POOLAmount $75,000 (ooo omitted)Interest rate 11.00%Term 10 years

Annual Payment $12,735.11 Prepayment rate 0.00%

LOAN SCHEDULE FOR MORTGAGE POOL

Year Beg. Bal Payment Interest Principal End Bal

1 $75,000.00 $12,735.11 8,250.00 $4,485.11 $70,514.89 2 70,514.89 $12,735.11 7,756.64 $4,978.47 $65,536.42 3 65,536.42 $12,735.11 7,209.01 $5,526.10 $60,010.32 4 60,010.32 $12,735.11 6,601.14 $6,133.97 $53,876.35 5 53,876.35 $12,735.11 5,926.40 $6,808.71 $47,067.64 6 47,067.64 $12,735.11 5,177.44 $7,557.67 $39,509.98 7 39,509.98 $12,735.11 4,346.10 $8,389.01 $31,120.97 8 31,120.97 $12,735.11 3,423.31 $9,311.80 $21,809.17 9 21,809.17 $12,735.11 2,399.01 $10,336.10 $11,473.07

10 11,473.07 $12,735.11 1,262.04 $11,473.07 $0.00

CLASS Z TRAUNCHEAmount $30,000 Rate 11.00%

Total CashYear Beg. Bal Interest Payment End Bal Flow

0 ($30,000)1 $30,000.00 3,300.00 0.00 $33,300.00 0.00 2 33,300.00 3,663.00 0.00 36,963.00 0.00 3 36,963.00 4,065.93 0.00 41,028.93 0.00 4 41,028.93 4,513.18 0.00 45,542.11 0.00 5 45,542.11 5,009.63 6,484.10 44,067.64 6,484.10 6 44,067.64 4,847.44 12,405.11 36,509.98 12,405.11 7 36,509.98 4,016.10 12,405.11 28,120.97 12,405.11 8 28,120.97 3,093.31 12,405.11 18,809.17 12,405.11 9 18,809.17 2,069.01 12,405.11 8,473.07 12,405.11

10 8,473.07 932.04 9,405.11 0.00 9,405.11

IRR 11.00%

P V at 9.75% $32,611

TRAUNCH A

Amount $27,000 Rate 9.25%

CashYear Beg. Bal Interest Principal End Bal Flow

01 $27,000.00 2,497.50 $7,785.11 $19,214.89 10,282.61 2 19,214.89 1,777.38 8,641.47 10,573.42 10,418.85 3 10,573.42 978.04 9,592.03 981.39 10,570.07 4 981.39 90.78 981.39 0.00 1,072.17 5 0.00 0.00 0.00 0.00 0.00 6 0.00 0.00 0.00 0.00 0.00 7 0.00 0.00 0.00 0.00 0.00 8 0.00 0.00 0.00 0.00 0.00 9 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 0.00 0.00

P V at 8.50% $27,376

YTM

CLASS B TRAUNCHEAmount $15,000 Rate 10.00%

CashYear Beg. Bal Interest Principal End Bal Flow

01 $15,000.00 $1,500.00 $0.00 $15,000.00 1,500.00 2 15,000.00 1,500.00 0.00 15,000.00 1,500.00 3 15,000.00 1,500.00 0.00 15,000.00 1,500.00 4 15,000.00 1,500.00 9,665.76 5,334.24 11,165.76 5 5,334.24 533.42 5,334.24 0.00 5,867.66 6 0.00 0.00 0.00 0.00 0.00 7 0.00 0.00 0.00 0.00 0.00 8 0.00 0.00 0.00 0.00 0.00 9 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 0.00 0.00

P V at 9.50% $15,257 YTM

RESIDUAL CLASS

Total OtherYear in pool Classes Residual

0 ($3,000.00)1 $12,735.11 $11,782.61 952.50 2 $12,735.11 11,918.85 816.26 3 $12,735.11 12,070.07 665.03 4 $12,735.11 12,237.93 497.17 5 $12,735.11 12,351.76 383.34 6 $12,735.11 12,405.11 330.00 7 $12,735.11 12,405.11 330.00 8 $12,735.11 12,405.11 330.00 9 $12,735.11 12,405.11 330.00

10 $12,735.11 9,405.11 3,330.00

IRR 20.19%

Beginning Balance of ClassA B Z Total

Coupon 9.25% 10.00% 11.00%End of Year

0 27000 15000 30000 72000 1 19215 15000 33300 67515 2 10573 15000 36963 62536 3 981 15000 41029 57010 4 0 5334 45542 50876 5 0 0 44068 44068 6 0 0 36510 36510 7 0 0 28121 28121 8 0 0 18809 18809 9 0 0 8473 8473

a) Weighted Average Coupon when issued (yr 0) 10.14%

b) See above schedules for each class.Class A repaid in 3 years. Class B repaid in 5 years.

c) See above for WAC at end of each year.

Information and Graphs below are extra material for use by instructor

0 1 2 3 4 5 6 7 8 99.60%

9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%

Weighted Average Coupon(No prepayment)

Year

Wei

ghte

d A

vera

ge C

oupo

n

Prepayment IRR on ResidualRate

0.00% 19.10%5.00% 17.33%

10.00% 16.10%15.00% 15.53%20.00% 14.99%25.00% 14.74%30.00% 14.74%

0 1 2 3 4 5 6 7 8 99.60%

9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%


Year

Wei

ghte

d A

vera

ge C

oupo

n

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%14.00%

15.00%

16.00%

17.00%

18.00%

19.00%

20.00%

IRR on Residual vs. Prepayment

Prepayment rate

IRR

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%14.00%

15.00%

16.00%

17.00%

18.00%

19.00%

20.00%


Prepayment rate

IRR

Chapter 20CMO


Prepayment

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

CLASS Z TRAUNCHE

10% Price Increase

($33,000)0.00 0.00 0.00 0.00

6,484.10 12,405.11 12,405.11 12,405.11 12,405.11

9,405.11

9.57%

TRAUNCH A

10% Price Increase($29,700)

10,282.61 10,418.85 10,570.07

1,072.17 0.00 0.00 0.00 0.00 0.00 0.00

Note: No Class C in this problem but is included to make template more general.

4.23% CLASS C TRAUNCHEAmount $0

CLASS B TRAUNCHE Rate 0.00%

Year Beginning Interest Principal Ending BalanceBalance

10% Price Increase 1 $0.00 $0.00 $0.00 $0.00 ($16,500) 2 0.00 0.00 0.00 0.00 1,500.00 3 0.00 0.00 0.00 0.00 1,500.00 4 0.00 0.00 0.00 0.00 1,500.00 5 0.00 0.00 0.00 0.00

11,165.76 6 0.00 0.00 0.00 0.00 5,867.66 7 0.00 0.00 0.00 0.00

0.00 8 0.00 0.00 0.00 0.00 0.00 9 0.00 0.00 0.00 0.00 0.00 10 0.00 0.00 0.00 0.00 0.00

0.00 Do not delete Class C above. It is used for residual.

7.24%

Beginning Balance of ClassWAC

10.14%10.28%10.46%10.71%10.90%11.00%11.00%11.00%11.00%11.00%

0 1 2 3 4 5 6 7 8 99.60%

9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%


Year

Wei

ghte

d A

vera

ge C

oupo

n

0 1 2 3 4 5 6 7 8 99.60%

9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%


Year

Wei

ghte

d A

vera

ge C

oupo

n

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%14.00%

15.00%

16.00%

17.00%

18.00%

19.00%

20.00%


Prepayment rate

IRR

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%14.00%

15.00%

16.00%

17.00%

18.00%

19.00%

20.00%


Prepayment rate

IRR

Chapter 20CMO

Note: No Class C in this problem but is included to make template more general.

Chapter 20Floater and Inverse Floater

Input AssumptionsTotal amount of tranche $20,000,000 Interest rate for tranche 6.00%Total interest available $1,200,000

Maximum $ Amount Scale Rate change

Floater (F) $10,000,000 0.50 6.00%Inverse floater (IF) 10,000,000 0.50 -6.00%Total 20,000,000 1.00

F / IF Ratio 1.00 Max Inverse Floater (IF) rate 12.00%

Libor (F) Rate (IF) Rate F Interest0% 0.00% 12.00% $0 1% 1.00% 11.00% 100,000 2% 2.00% 10.00% 200,000 3% 3.00% 9.00% 300,000 4% 4.00% 8.00% 400,000 5% 5.00% 7.00% 500,000 6% 6.00% 6.00% 600,000 7% 7.00% 5.00% 700,000 8% 8.00% 4.00% 800,000 9% 9.00% 3.00% 900,000

10% 10.00% 2.00% 1,000,000 11% 11.00% 1.00% 1,100,000 12% 12.00% 0.00% 1,200,000 13% 12.00% 0.00% 1,200,000 14% 12.00% 0.00% 1,200,000 15% 12.00% 0.00% 1,200,000 16% 12.00% 0.00% 1,200,000 17% 12.00% 0.00% 1,200,000 18% 12.00% 0.00% 1,200,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

Rate on Floater and Inverse Floater vs. LIBOR

Floater Inverse FloaterLIBOR

Rat

e

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%



Rat

e

Chapter 20Floater and Inverse Floater

Rate limit12.00%

0.00%

IF Interest Total Interest$1,200,000 $1,200,000

1,100,000 1,200,000 1,000,000 1,200,000

900,000 1,200,000 800,000 1,200,000 700,000 1,200,000 600,000 1,200,000 500,000 1,200,000 400,000 1,200,000 300,000 1,200,000 200,000 1,200,000 100,000 1,200,000

0 1,200,000 0 1,200,000 0 1,200,000 0 1,200,000 0 1,200,000 0 1,200,000 0 1,200,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%



Rat

e

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%



Rat

e

Chapter 20IO/PO

MORTGAGE POOLAmount $1,000,000 Interest rate 11.00%TERM 10 years

Annual Payment 169801.427097 Prepayment


Year Beg. Bal Payment Interest Principal

1 1000000 169801 110000 598012 940199 169801 103422 663803 873819 169801 96120 736814 800138 169801 88015 817865 718351 169801 79019 907836 627569 169801 69033 1007697 526800 169801 57948 1118538 414946 169801 45644 1241579 290789 169801 31987 137815

10 152974 169801 16827 152974

Interest only and Principal only strips

Year Interest Principal

1 $110,000 $59,801 2 103,422 66,380 3 96,120 73,681 4 88,015 81,786 5 79,019 90,783 6 69,033 100,769 7 57,948 111,853 8 45,644 124,157 9 31,987 137,815

10 16,827 152,974

PV @ 11% PV @ 11%

Assuming no prepayment $461,248 $538,752

PV @ 10% PV @ 10%


PV @12% PV @12%


Assuming prepayment:

MORTGAGE POOLAMOUNT $1,000,000 INTEREST RATE 11.00%TERM 10

ANNUAL PAYMENT 169801.427097 PREPAYMENT


Year Beg. Bal Payment Interest Principal

1 1000000 169801 110000 2598012 740199 133681 81422 2002993 539900 104914 59389 1535054 386395 81999 42503 1167745 269620 63732 29658 879986 181623 49142 19978 654887 116135 37433 12775 478858 68249 27929 7507 340719 34178 19958 3760 23034

10 11144 12370 1226 11144

Interest only and Principal only strips

Year Interest Principal

1 $110,000 $259,801 2 81,422 200,299 3 59,389 153,505 4 42,503 116,774 5 29,658 87,998 6 19,978 65,488 7 12,775 47,885 8 7,507 34,071 9 3,760 23,034

10 1,226 11,144

PV @ 11% PV @ 11%$276,200 $723,800

Extra Calculations below

Present values at 8 percent with

PV of interest PV of Principal$296,777 $784,162

PV of Interest PV of PrincipalPrepayment

0.00% $361 $639 5.00% 311 689

10.00% 271 729 15.00% 238 762 20.00% 211 789 25.00% 189 811 30.00% 171 829

Assume $275 paid for the IO and $725 paid for the PO based on 15% prepayment.What is the IRR for the IO and PO if prepayment is actually 20%?

Year Interest Principal0 ($275) ($725)1 110,000 259,801 2 81,422 200,299 3 59,389 153,505 4 42,503 116,774 5 29,658 87,998 6 19,978 65,488 7 12,775 47,885 8 7,507 34,071 9 3,760 23,034

10 1,226 11,144

IRR 39974.02% 35811.78%

IRR of IO IRR of POPrepayment

0.00% 30.00% 5.38%5.00% 25.32% 6.57%

10.00% 20.62% 7.90%15.00% 15.91% 9.37%

20.00% 11.19% 10.94%25.00% 6.45% 12.59%30.00% 1.70% 14.30%

0% 5% 10% 15% 20% 25% 30%0%

5%

10%

15%

20%

25%

30%

35%

IRR on IO and PO vs. Prepayment

IO

PO

Prepayment rate

IRR

Chapter 20IO/PO

0.00%


End Bal Prepayment

940199 0.00 873819 0.00 800138 0.00 718351 0.00 627569 0.00 526800 0.00 414946 0.00 290789 0.00 152974 0.00

0 0.00

Total PV$1,000,000

Total PV$1,043,356

Total PV$959,416

MORTGAGE POOL ($000 omitted)

years

20.00%


End Bal Prepayment

740199 200000539900 148040386395 107980269620 77279181623 53924116135 36325

68249 2322734178 1365011144 6836

0 0

Total PV$1,000,000

20.00% prepayment

Total PV$1,080,939

Total PV

$1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Assume $275 paid for the IO and $725 paid for the PO based on 15% prepayment.What is the IRR for the IO and PO if prepayment is actually 20%?

0% 5% 10% 15% 20% 25% 30%0%

5%

10%

15%

20%

25%

30%

35%

IRR on IO and PO vs. Prepayment

IO

PO

Prepayment rate

IRR

Chapter 20Pool characteristics: Mortgages $10,000,000 Default property Price $8,000,000 Interest rate 10%Maturity 5

Assets Liabilities

Commercial Senior Securities: mortgages $10,000,000 Class A bonds

Subordinated securities:Class B bonds

TotalNet Worth (residual)

Total $10,000,000 Total

Panel A. No Default or Mortgage Payment

End of Cash Inflow Period to Pool Senior Subordinated Residual

1 $1,000,000 $480,000 $300,000 $220,000 2 $1,000,000 $480,000 $300,000 $220,000 3 $1,000,000 $480,000 $300,000 $220,000 4 $1,000,000 $480,000 $300,000 $220,000 5 $11,000,000 $6,480,000 $3,300,000 $1,220,000

IRR = 8.00% 10.00% 22.00%

Panel B. Default Occurs at Maturity and Sale of Property is 80%of Outstanding Loan Balance

End of Cash Inflow Period to Pool Senior Subordinated Residual

1 $1,000,000 $480,000 $300,000 $220,000 2 $1,000,000 $480,000 $300,000 $220,000 3 $1,000,000 $480,000 $300,000 $220,000 4 $1,000,000 $480,000 $300,000 $220,000 5 $9,000,000 $6,480,000 $2,520,000 $0

IRR = 8.00% 5.33% -4.92%

Chapter 20

Liabilities

Coupon8% $6,000,000

10% $3,000,000

$9,000,000 $1,000,000

$10,000,000

IRR CalculationsSenior Subordinated Residual($6,000,000) ($3,000,000) ($1,000,000)

$480,000 $300,000 $220,000 $480,000 $300,000 $220,000 $480,000 $300,000 $220,000 $480,000 $300,000 $220,000

$6,480,000 $3,300,000 $1,220,000

8.00% 10.00% 22.00%

IRR CalculationsSenior Subordinated Residual($6,000,000) ($3,000,000) ($1,000,000)

$480,000 $300,000 $220,000 $480,000 $300,000 $220,000 $480,000 $300,000 $220,000 $480,000 $300,000 $220,000

$6,480,000 $2,520,000 $0

8.00% 5.33% -4.92%

Chapter 21Efficient Frontier

1978 - 2000

Std. Dev. ReturnS & P 7.41% 4.06%NCREIF 1.76% 2.32%Correlation -0.0521

Portfolio Portfolio% S&P % NCREIF Variance Stand. Dev Return Return x 100

0.00% 100.00% 0.03% 1.76% 2.32% 2.32 5.00% 95.00% 0.03% 1.69% 2.41% 2.41

10.00% 90.00% 0.03% 1.71% 2.50% 2.50 15.00% 85.00% 0.03% 1.82% 2.58% 2.58 20.00% 80.00% 0.04% 1.99% 2.67% 2.67 25.00% 75.00% 0.05% 2.22% 2.76% 2.76 30.00% 70.00% 0.06% 2.48% 2.84% 2.84 35.00% 65.00% 0.08% 2.78% 2.93% 2.93 40.00% 60.00% 0.10% 3.09% 3.02% 3.02 45.00% 55.00% 0.12% 3.42% 3.10% 3.10 50.00% 50.00% 0.14% 3.76% 3.19% 3.19 55.00% 45.00% 0.17% 4.11% 3.28% 3.28 60.00% 40.00% 0.20% 4.47% 3.36% 3.36 65.00% 35.00% 0.23% 4.82% 3.45% 3.45 70.00% 30.00% 0.27% 5.19% 3.54% 3.54 75.00% 25.00% 0.31% 5.55% 3.62% 3.62 80.00% 20.00% 0.35% 5.92% 3.71% 3.71 85.00% 15.00% 0.40% 6.29% 3.80% 3.80 90.00% 10.00% 0.44% 6.66% 3.88% 3.88 95.00% 5.00% 0.50% 7.04% 3.97% 3.97

100.00% 0.00% 0.55% 7.41% 4.06% 4.06

1% 2% 3% 4% 5% 6% 7% 8%0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Exhibit 20-8 Portfolio Returns of NCREIF and S&P 500

Portfolio standard deviation %

Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%2.00

2.50

3.00

3.50

4.00

4.50



Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%



Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%2.00

2.50

3.00

3.50

4.00

4.50



Po

rtfo

lio

Ret

urn

(p

erce

nt)

Chapter 21Efficient Frontier

1978 - 2000

1% 2% 3% 4% 5% 6% 7% 8%0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%



Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%2.00

2.50

3.00

3.50

4.00

4.50



Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%



Po

rtfo

lio

Ret

urn

(p

erce

nt)

1% 2% 3% 4% 5% 6% 7% 8%2.00

2.50

3.00

3.50

4.00

4.50



Po

rtfo

lio

Ret

urn

(p

erce

nt)

33 spreadsheet templates for real estate finance and investments

Documents

assuming monthly payments

chapter 4effective cost

selected exhibits

interest rate

balance 60

loan

payment

00 interest 600