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GSBA594 Class 3 Worksheets - for students

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GSBA594 Class 3 Worksheets  - for students Powered By Docstoc
					1   Financial analysis involves determining 3 things:
     $ amount of cash flow stream (in & out)
     Timing of cash flows
     Your opportunity cost


3   Relationship of Net Present Value & IRR
     The IRR is that rate that will make the Net Present Value equal $0
     2 problems w/ IRR: can occasionally give 2 values & assumes same reinvesment rate as project


2   Give them Excel formula for monthly & quarterly IRR calcs
    =(1+IRR(M40:BT40,0.001))^12 - 1
    notes: Cell address in red is the cash flow stream. The "12" in green represents 12 months. Change to 4
    for quarterly values.
When is a dollar not a dollar?
Amount: $1



             Present Value of $1
             Year 3    Year 5      Year 10
 8%          $0.79      $0.68       $0.46
 10%         $0.75      $0.62       $0.39
 12%         $0.71      $0.57       $0.32
            “Waiting for the Market to Turn”
           To Hold or Not to Hold….that is the question
Value of Property:                                       $300,000
Net Annual Rental Cash Flow:                              $12,000
Annual Appreciation:                                              5%
Opportunity Cost:                                            10%

    Year of Sale:      Year 1      Year 2     Year 3     Year 4        Year 5

    Without Rent        $286,364   $273,347   $260,922   $249,062      $237,741

 With $1K Net Rent      $297,273   $294,174   $290,764   $287,101      $283,231
             “To mod or not to mod”
            Loan Amount:                    $300,000
         Value of Property:                 $200,000
         Opportunity Cost:                      10%

                      IRR     Investment    Year 1     Year 2     Year 3

Foreclosure &
                      10%       (200,000)   $20,000    $20,000   $220,000
reinvestment
Loan Mod (Reduce
                      21%       (200,000)   $15,000    $15,000   $315,000
interest to 5%)




              5.00%
  2nd TD Scenario – Negative Carry
Value of Property:                                   $200,000
1st TD                                               $220,000
Your Loan - 2nd TD                                    $50,000
Net Annual Rental Cash Flow:                          ($2,400)
Annual Appreciation:                                          5%
Opportunity Cost:                                         10%
    Year of Sale:      Year 1         Year 2         Year 3
   Present Value:       ($11,273)      ($3,752)        $2,690
                          210,000       220,500        231,525
                          (220,000)     (220,000)      (220,000)
                           (10,000)            500      11,525
                            (2,400)       (4,800)        (7,200)
                           (12,400)       (4,300)         4,325
                            Buying a Discounted Note
                       Unpaid Principal of 1st TD:    $400,000
                          Purchase Price of Note:     $240,000
                               Value of Property:     $300,000
                               Opportunity Cost:             10%
       Year of Sale:           IRR    Investment      Year 1       Year 2     Year 3
If Loan Perfoms               33%     ($240,000)     $40,000       $40,000   $440,000   10%
If You Foreclosure            15%     ($240,000)        $0         $30,000   $330,000   10%
If You Mod the Loan (5%       26%     ($240,000)     $20,000       $20,000   $420,000   5%
Rate)

Weighted Average IRR of the Probabilities
                                                     Weighted
                               IRR    Probability
                                                       IRR
If Loan Perfoms               33%        10%           3%
If You Foreclosure            15%        30%           4%
If You Mod the Loan           26%        60%           15%
Weighted Avg. IRR of                    100%           23%
Purchase
                     Buying a Discounted Note - Varga Loan
                       Unpaid Principal of 1st TD:      $479,709
                          Purchase Price of Note:       $200,000
                               Value of Property:       $270,000
                               Opportunity Cost:               10%
                               IRR     Investment       Year 1       Year 2        Year 3
If Loan Perfoms               39%      ($200,000)      $14,391       $14,391     $494,100
If You Foreclosure            18%      ($200,000)         $0         $27,000     $297,000
If You Mod the Loan           23%      ($200,000)      $27,000       $27,000     $297,000        Assumes modding principal to value of property


Weighted Average IRR of the Probabilities
                                                      Weighted
                               IRR     Probability
                                                        IRR
If Loan Perfoms               39%          10%          4%
If You Foreclosure            18%          30%            5%
If You Mod the Loan           23%          60%           14%
Weighted Avg. IRR of                      100%           23%
Purchase



                                        Original Loan Unpaid Princ. Current Note Payment (P &   Adjustable or                   Remaing         Payment
                                           Amount         Bal.         Rate %       I Only)         Fixed?        Term            Term         Frequency
Walling S                    4525093   -RC    225,500     211,546            7.25       1,538   Fixed                     30              295 monthly
Therrien P                   4548251   -RC 190,000        210,131            6.63       1,160   ARM                       30              297 monthly
Reed M.                      4604104   -RC    245,750     243,041            3.75       1,223   ARM                       30              298 monthly
Stephenson J.                4699641   -RC    223,500     236,366               5         985                             30               years)
                                                                                                ARM (Set up as negative arm for first five304 monthly
Varga P    4976445 -RC   436,000   479,709      3                                   30               years)
                                                    1,199 ARM (Set up as negative arm for first five335 monthly
Walker L   5229588 -RC   152,000   165,150   5.13                                   40               years)
                                                      542 ARM (Set up as negative arm for first five437 monthly
                                                        Last
   Balloon                    Lien        Current     Valuation    Valuation     Property                                         Payment
 Amount?     Carryback?     Position   Property Value   Date        Source         Type      City          State   Zip Code        History Credit Grade
no                        1st               130,000 12/30/2010    BPO          SFH        DAVENPORT   FL                38837              Foreign ENG
                                                                                                                                1X180 CURRENT
no                        1st                 99,000 12/30/2010   BPO          SFH        DAVENPORT   FL                33897              Foreign
                                                                                                                                NO PAST CURRENT CAN
no                        1st               312,000 12/30/2010    BPO          SFH        REUNION     FL                34747              Foreign ENG
                                                                                                                                1X120 CURRENT
no                        1st               155,000 12/30/2010    BPO          TOWNHOUSEORLANDO       FL                32828              Foreign ENG
                                                                                                                                1X120 CURRENT
no   1st   270,000   12/30/2010 BPO                        FL
                                      TOWNHOUSEUNIVERSITY PARK   32827 NO PAST CURRENT   614
no   1st    50,000   12/30/2010 BPO   SFH      TAMPA       FL    33837 1X90 CURRENT      516
                            Original Loan Amount     Unpaid Princ. Bal.      Current Note Rate %
Walling S       4525093 -RC                   225500               211546.17                     7.25
Therrien P      4548251 -RC                   190000               210130.83                     6.63
Reed M.         4604104 -RC                   245750               243041.34                     3.75
Stephenson J.   4699641 -RC                   223500               236365.69                        5
Varga P         4976445 -RC                   436000               479708.77                        3
Walker L        5229588 -RC                   152000               165149.88                     5.13
Payment (P & I Only)     Adjustable or Fixed?    Term Remaing Term               Lien Position
               1538.31   Fixed                      30                     295   1st
                1160.1   ARM                        30                     297   1st
               1223.22   ARM                        30                     298   1st
                985.09                               for
                         ARM (Set up as negative arm30 first five years)   304   1st
               1199.27                               for
                         ARM (Set up as negative arm30 first five years)   335   1st
                542.44                               for
                         ARM (Set up as negative arm40 first five years)   437   1st
Current Property Value Last Valuation Date        Valuation Source   Property Type
            130,000.00               12/30/2010   BPO                SFH
              99,000.00              12/30/2010   BPO                SFH
            312,000.00               12/30/2010   BPO                SFH
            155,000.00               12/30/2010   BPO                TOWNHOUSE
            270,000.00               12/30/2010   BPO                TOWNHOUSE
              50,000.00              12/30/2010   BPO                SFH
City              State   Zip Code      Payment History   Credit Grade
DAVENPORT         FL            38837   1X180 CURRENT     Foreign ENG
DAVENPORT         FL            33897   NO PAST CURRENT   Foreign CAN
REUNION           FL            34747   1X120 CURRENT     Foreign ENG
ORLANDO           FL            32828   1X120 CURRENT     Foreign ENG
UNIVERSITY PARK   FL            32827   NO PAST CURRENT             614
TAMPA             FL            33837   1X90 CURRENT                516

				
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