discounted cash flow analysis with irr and npv
TRANSCRIPT
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
1/39
Draft: June 9, 2005 Discounted Cash Flow Analysis with IRR and NPV
This workbook contains several spreadsheets that might be used fo the analsis of a real estate in
The cash flow module includes the cash flow module inputs which provide the output summari"edfor up to $0 ears, sales proceeds and ields! The ields are provided as %&&s, internal rates of re
page based upon a re#uired rate of return and assuming a reasonable mortgage value as provide
The %&& and '() results are not realistic if the mortgage assumptions don*t make sense! That is
ob+ectives of the investor, lender, and tenants!
%nvestor ob+ectives might include a target re#uired rate of return, a given cash on cash return in th
ender ob+ectives might include a reasonable minimum D-&, debt coverage ratio, in the first ear
Tenant ob+ectives are usuall related to occupanc cost, minimi"ing the present value of occupanc
Developer ob+ectives, not directl considered here, ma be related to wealth creation where value
%f the investor is tpical in terms of market parameters, such as ta/ rates, interest rates, T) and r
flow models should be similar to the values using the appraisal techni#ues! %f the are not then th
%&1T: ou must enable 3acros4
1eond: ou ma need to go to Tools and protection and unprotect an sheet ou are working on
The %&& is on the ield worksheet in cell J$2$!
The first ear debt coverage ratio is in the cash flow proforma in cell D26!
What is the property worth if you need an IRR of 15.!" and de#t coe$ra%e r
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
2/39
vestment from various perspectives!
on the ac#uisition info, cash flow proformaturn! There is also a '(), net present value
!
the analst must be able to meet the
earl or later ears, a certain dollar '() or other criteria!
and beond, and a reasonable T), loan to value ratio!
but non. #uantitative ob+ectives ma also come into pla!
e/ceeds costs!
#uired ields then the resulting values using discounted cash
assumptions of one or the other don*t make sense!
in order to do editing!
atio of 1. in the first year&
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
3/39
Investor Assumptions1. Tax Rate on Ordinary Income 34.00%
2. Tax Rate on Capital Gains 15.00%
3. Tax Rate on Cost Recovery Recaptre 25.00%
4. !ro"ected #oldin$ !eriod 10
5. O& 10 Resale !rice Cap Rate '(ses 11t) &ear *OI or + ,mont- x. nter 10% )ere as 10.0 10.00% +/05//
/. isposition Cost o ale .00% I* t)e cell C11
7 yo c)an$e t)
. !rc)ase !rice ',cisition Cap Rate or + ,mont- /50000.00 +/50000
6. ,cisition Costs +0
7. Improvement ,llocation 60.00%
10. (sel 8ie 2.5
11. &ear 1 !otential Rental Income9Constant ,nnal Grot) Rate +70000 3.00%
12. Constant :acancy Rate 'x; nter 5% )ere as .05- 5.00%
13. !roperty
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
4/39
to t)e loer letprc)ase price
r
adedt Cells
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
5/39
!rc)ase !rice,cisition Costs,cisition Cap RateInitial InvestmentCost Recovery :ale o Improvements(sel 8ie11 192
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
6/39
(ropert %nformation
(urchase (rice 7650,000
8c#uisition -osts 70
8c#uisition -ap &ate !5;
%nitial %nvestment 7$!5
$$ $?2 3onth ear -ost &ecover Deduction 7$,$22ull ear -ost &ecover Deduction 7$,90>
Disposition -ap &ate $0!00;
(ro+ected @nd of ear $0 1ale (rice 7>60,566
(ro+ected @nd of ear $0 -ost of 1ale 75
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
7/39
Initial In$est)ent *1'5+((
Cost Reco$ery Value of I)pro$e)ents *5(+(((
11 1, -onth ear Cost Reco$ery "a%e '.!/5"
Full ear Cost Reco$ery "a%e '.0'0"
.!5"
.50!"
ear of Refinance 234
Refinance 6oan A)ount
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
8/39
+/50000
+0
6.54%
+135200
+520000
2.5
+16122
+167010.00%
+/05//
+53240
0
+00.00%
12
+0.00
+0
25
25
+0
0.00%
005%
12
74
77
25
25
00
1%
9,
ition Refnance
Summary
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
9/39
7$,000 7>!
B7990C
$ 79>!2 9!6 !0;
< 795!92 !6;
792!2 !55;
5 7925! 75!>5 !5; 76
9 72 !$;
7$,000 70!00
B7$,000!00C
balance
$ 70!00 0!00;
2 70!00 0!00;
< 70!00 0!00;
70!00 0!00;
5 70!00 0!00;
6 70!00 0!00;> 70!00 0!00;
70!00 0!00;
9 70!00 0!00;
$0 70!00 0!00;
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
10/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
11/39
END OF YEAR 1 2 3 41. !OT*TI,8 R*T,8 I*CO
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
12/39
33.
*!+050 *!+(75 *!1+!/ *!(+/0
Ac8uisition 6oan
*5(+(((
Pay)ent *!+(77.7! *!+(77.7! *!+(77.7! *!+(77.7!
AD9 *!7+177 *!7+177 *!7+177 *!7+177
Interest *!+050 *!+(75 *!1+!/ *!(+/0
:alance *51'+!5 *5(0+'5' *!7/+0!1 *!7(+0/
6oan Costs *5+(( *!+77 *!+/! *!+50
Annual 6C A)orti;ation *(/ *(/ *(/ *(/
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
13/39
Refinance 6oan
1 ' !
Refinance Proceeds *51'+!5 *5(0+'5' *!7/+0!1 *!7(+0/
6oan A)ount *( *( *( *(
Pay)ent *( *( *(AD9 *( *( *(
Interest *( *( *(
:alance *( *( *(
6C *( *( *(
PA *( *( *(
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
14/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
15/39
5 6 7 8 9 10+10127/ +104335 +104/5 +110/67 +114007 +11430
+50/5 +521 +533 +5534 +500 +561+7/231 +77116 +102071 +105154 +106307 +111556
+/76 +727 +61/ +6412 +6//5 +6725
+7//2 +7655 +10052 +10253 +10456 +10//
+2/36 +2/71 +244 +277 +2655 +2712
+11665 +12242 +12/07 +1276 +133 +136
+1351 +1371 +1433 +14/ +1520 +15//
+/277 +/5010 +/06/ +/722/ +1433 +307
+40106 +37327 +36463 +35/5 +3/5/6 +3546/+1670 +1670 +1670 +1670 +1670 +16122
+206 +206 +206 +206 +206 +206
+34 +/5/5 +746 +1254/ +1550 +17673
34.00% 34.00% 34.00% 34.00% 34.00% 34.00%
+1263 +2232 +322/ +42// +5355 +//4
+/277 +/5010 +/06/ +/722/ +1433 +307
+47177 +47177 +47177 +47177 +47177 +47177
+0 +0 +0 +0 +0 +0
+1376 +15610 +166/ +2002 +22234 +24510+1263 +2232 +322/ +42// +5355 +//4
+12515 +1356 +14//1 +15/1 +1/67 +14
1.26 1.32 1.3/ 1.41 1.45 1.50
61.36% 7.65% 6.3/% /.71% 5.50% 4.13%
34.54% 34.41% 34.27% 34.1% 34.05% 33.73%
10.21% 11./7% 13.23% 14.61% 1/.45% 16.13%
7./7% 10.00% 10.32% 10./5% 10.77% 11.34%7.2/% 10.04% 10.64% 11.//% 12.46% 13.13%
+4611 +4130 +4/0571 +44675 +43/32/ +422/13
+0 +0 +0 +0 +0 +0
+/06/6 +651/3 +610215 +63/047 +6/2/67 +670157
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
16/39
*!(+1(/ *'7+'7 *'/+!/' *'+505 *'0+50/ *'5+!/0
*!+(77.7! *!+(77.7! *!+(77.7! *!+(77.7! *!+(77.7! *!+(77.7!
*!7+177 *!7+177 *!7+177 *!7+177 *!7+177 *!7+177
*!(+1(/ *'7+'7 *'/+!/' *'+505 *'0+50/ *'5+!/0
*!/1+1 *!1+'( *!0(+571 *!!/+75 *!'0+'0 *!+01'
*!+'0/ *!+10( *'+75 *'+!! *'+5'0 *'+'/
*(/ *(/ *(/ *(/ *(/ *(/
*!+10( *'+75 *'+!! *'+5'0 *'+'/ *'+1(
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
17/39
5 0 / 7 1(
*!/1+1 *!1+'( *!0(+571 *!!/+75 *!'0+'0
*( *( *( *( *( *(
*( *( *( *( *( *(*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
*( *( *( *( *( *(
Pay)ent *( *( *( *( *(
AD9 *( *( *( *( *(
Interest *( *( *( *( *(
:alance *( *( *( *( *(
6C *( *( *( *( *(
PA *( *( *( *( *(
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
18/39
:alance *( *( *( *(
6C *( *( *( *(
PA *( *( *( *(
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
19/39
11+120752
+/046+114705
+7172
+10661
+271
+14172
+1/13
+/05
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
20/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
21/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
22/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
23/39
Sale Price
-Cos o! Sale-A"#$se" %asis&oal 'ai(-&oal Cos Reco)er* &a+e(Ca,ial 'ai((a.ori/e" oa( Coss
Sale Price-Cos o! Sale-orae %ala(ceSale Procee"s %e!ore &a-&a o( Cos Reco)er* Reca,$re-&a o( Ca,ial 'ai(
-&a Sa)i(s o( Or"i(ar* (co.eSale Proceeds After Tax
2500
1500
34
Sale Proceeds Aft
Taxable Income Fr
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
24/39
9ale Price *0(+500
Cost of 9ale *5'+!(
Ad>usted :asis *!0+5((
=otal ?ain *!!+/0
=otal Cost Reco$ery =a@en *1/+5((
Capital ?ain *5+'0
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
25/39
0 1:061
760:56653:240
422:613
284:713
46:875
8:599
$230300
760:566
53:240462:500
244:826
187:50057:326
3:120
r Tax
m Sale
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
26/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
27/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
28/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
29/39
!0"!#I%% &
'nle(eraged)efore Tax
650:000
55:53757:317
59:152
61:045
62:99765:010
67:086
69:22671:433
73:709 707:326;
EOY012345678910
135:200
6:3388:1179:953
11:846
13:798
15:810
17:886
20:02722:234
24:510 284:;
EOY012345678910
*e(eraged)efore Tax
!+"#+I%% &
Pro,ected In(est
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
30/39
EOY
0 135:200
1 6:3382 8:117
3 9:953
4 11:846
5 13:798
6 15:810
7 17:886
8 20:027
9 22:234
10 24:510 ; 284:713
I%% & !+"#+ I
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
31/39
( 2*05(+(((
1 *55+5'
*5+'1
' *57+15
! *01+(!5
5 *0+77
0 *05+(1(
*0+(/0
/ *07+0
7 *1+!''
1( *'+(7 *(+'0
#t unl
2*1'5+(( 2*05(+(((
*0+''/ *55+5'
*/+11 *5+'1
*7+75' *57+15
*11+/!0 *01+(!5
*1'+7/ *0+77
*15+/1( *05+(1(
*1+//0 *0+(/0
*(+( *07+0*+'! *1+!''
*'(7+' */1+('0
1!.7!" 1(.17"
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
32/39
713
135:2008:190
9:441
10:446
11:47012:515
13:578
14:66115:761
16:879
17:747 230:300;
EOY012345678910
*e(eragedAfter Tax
!2"..I%% &
ent -ields
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
33/39
EOY
0 135:200
1 8:1902 9:441
3 10:446
4 11:470
5 12:515
6 13:578
7 14:661
8 15:761
9 16:879
10 17:747 ; 230:300
% & !2"..
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
34/39
at
2*1'5+((
*/+17(
*7+!!1
*1(+!!0
*11+!(
*1+515
*1'+5/
*1!+001
*15+01*10+/7
*!/+(!
1."
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
35/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
36/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
37/39
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
38/39
&e#uired &ate of &eturn 1.5(" from input page
'ote that the %&& is 1." if the %&& is the same as the &
'et (resent )alue of @#uit 72,20>!5>(lanned @#uit 7$,0>!5>
%nitial -ash ear $ 2 <
B7$0
Total %nvestment )alue of(ropert at &&&
-
7/25/2019 Discounted Cash Flow Analysis With IRR and NPV
39/39
& the '() will be "ero
5 6 > 9 $0
7$2,5$5 7$ 7$,66$ 7$5,>6$ 7$6,>9 72,0>