Discounted Cash Flow Analysis With IRR and NPV

7/25/2019 Discounted Cash Flow Analysis With IRR and NPV

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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


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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&


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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


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to t)e loer letprc)ase price

r

adedt Cells


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!rc)ase !rice,cisition Costs,cisition Cap RateInitial InvestmentCost Recovery :ale o Improvements(sel 8ie11 192


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


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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


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


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;


10/39


11/39

END OF YEAR 1 2 3 41. !OT*TI,8 R*T,8 I*CO


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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 *(/ *(/ *(/ *(/


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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 *( *( *(


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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


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*!(+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(


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5 0 / 7 1(

*!/1+1 *!1+'( *!0(+571 *!!/+75 *!'0+'0

*( *( *( *( *( *(

*( *( *( *( *( *(*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

*( *( *( *( *( *(

Pay)ent *( *( *( *( *(

AD9 *( *( *( *( *(

Interest *( *( *( *( *(

:alance *( *( *( *( *(

6C *( *( *( *( *(

PA *( *( *( *( *(


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:alance *( *( *( *(

6C *( *( *( *(

PA *( *( *( *(


19/39

11+120752

+/046+114705

+7172

+10661

+271

+14172

+1/13

+/05


20/39


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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


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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


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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


26/39


27/39


28/39


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


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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


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( 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"


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


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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"..


34/39

at

2*1'5+((

*/+17(

*7+!!1

*1(+!!0

*11+!(

*1+515

*1'+5/

*1!+001

*15+01*10+/7

*!/+(!

1."


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36/39


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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 &&&


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>

Discounted Cash Flow Analysis With IRR and NPV

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