User Manual

Appendix
Real Estate
Wrap-Around Mortgage
•
n
1
= number of years remaining in original mortgage.
•
PMT
1
= yearly payment of original mortgage.
•
PV
1
= remaining balance of original mortgage.
•
n
2
= number of years in wrap-around mortgage.
•
PMT
2
= yearly payment of wrap-around mortgage.
•
r = interest rate of wrap-around mortgage as a decimal.
•
FV = balloon payment.
•
PV
2
- PV
1
=
PMT
2
[1 - ( 1 + r)
-n2
]
r
-
PMT
1
[1 - (1 + r)
-n1
]
r
+ FV (1 + r)
-n2
After-Tax Cash Flows
•
ATCF
k
= After-Tax Cash Flow for kth year.
•
Int
k
= interest for kth year.
•
Dep
k
= depreciation for kth year.
•
r = appropriate tax rate.
•
NOI = Net Operating Income.
•
ATCF
k
= NOI (1 - r) - 12 x PMT + r x (Int
k
+ Dep
k
).
After-Tax Net Cash Proceeds of Resale
•
CO = capital purchase.
•
CPR = sales price - closing costs.
•
r = marginal tax rate.
•
NCPR = CPR - remaining balance of mortgage.
•
ATNCPR = NCPR + r x [(.6 SL Dep. - Total Dep) + .4 x (CO - CPR)]