Introduction to Discounted Cash Flow Analysis

Introduction to Discounted Cash Flow Analysis Introduction to Discounted Cash Flow Analysis - Start

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by. James R. DeLisle, Ph.D.. March 18, 2014. Lecture . Preview. DCF Prelude: . Frontdoor. /Backdoor. The Value Proposition: Value => Cost?. Land & Hard . Costs. Unknown Fees. Known Soft Costs . ID: 390251 Download Presentation

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Introduction to Discounted Cash Flow Analysis




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Presentations text content in Introduction to Discounted Cash Flow Analysis

Slide1

Introduction to Discounted Cash Flow Analysis

by

James R. DeLisle, Ph.D.

March 18, 2014

Slide2

Lecture Preview

Slide3

DCF Prelude:

Frontdoor

/Backdoor

Slide4

The Value Proposition: Value => Cost?

Land & Hard

Costs

Unknown Fees

Known Soft Costs

& Fee Costs

TRCm

Value =

Income

Rate

$’s Cost = Create Value

Value ??

TRCm

= Total Replacement Cost

market

Slide5

FD/BD Value Proposition: Cost < >Value ?

Value * Rate = Income

Value

* Rate

Income

Frontdoor

Value * Rate =>

Income

Value

<=

Income

Rate

Backdoor

User

Slide6

Frontdoor Model: Sequence

Land

Hard & Soft Costs

TRCm

TRCm

NIr

* Wcc

/ NIR

GIr

NIR = 1 – (Er + Ptx + Vr)

Slide7

Backdoor Model: Reverse Engineered

Land

Hard & Soft Costs

TRCj

TRCj

NIm

/

Wcc

/ NIR

GIm

NIR = 1 – (Er + Ptx + Vr)

Slide8

Backdoor to Unleveraged DCF Analysis

Land

Hard & Soft Costs

TRCm

TRCm

NIm

/ Wcc

* NIR

GIm

M

a

r

k

e

t

Slide9

Frontdoor/Backdoor vs. DCF

Frontdoor/Backdoor

Annuitized Leveraged/UnleveragedConstant DollarsBefore TaxBefore Sale

Discounted Cash Flow

Non-annuitized

Leveraged/Unleveraged

Present Value (TVM)

After-tax

After Sale

Slide10

DCF Models:

A Visual Perspective

Slide11

Equity Justified: PV of CF + PV Net Reversion

NIr

GIr

PV CF +

Slide12

Net Reversion

TRCm

NIr

GIr

Stabilized

NOI

Sales Price

- Sales

Exp

Net Reversion

Appreciation

Land Value

Depreciation

Amortization

Mortgage

CG

Appr

x

15%

CG Depr

x 25%

Pb

Net Sales Price

Slide13

Equity Justified: PV of CF + PV Net Reversion

= Ej

NIr

GIr

Sales Price

- Sales Exp

- Tax on Sale

- Mtg. Bal.

Net Reversion

PV CF +

PV NR

Slide14

Cash Flow: The One Key Word

GI

NI

TI

BT

AT

NR

Gross Income

Net Income

Taxable Income

Before Tax Cash Flow

After Tax Cash Flow

Net Reversion

Slide15

DCF Case Study:

Inputs and Schedules

Slide16

Cash Flow Variables and TRC/FD/BD Inputs

Selling Expense

Exit Cap Rate

DeprLife

39

CGTxR

15

.00%

CGTxV

25.00%

Slide17

Discounted Cash Flow and Financial Ratios

Schedule I: Cash Flow

Schedule II: Depreciation

Schedule III: Loan Amortization

Schedule IV: Net Reversion

Schedule V: Capital Gain Tax

Schedule VI: Financial Ratios

Slide18

Schedule I: Cash Flow Overview

Slide19

Schedule I: Cash Flow Overview

Slide20

Schedule I: GI to NI

Slide21

Schedule II: Depreciation

$3,436,567*(1/39) = $88,117

Slide22

Schedule III: Loan Amortization

Calculate Payment

Calc. Principal Balance

Calc. Prin.

Reduction

Calc. Interest

Slide23

Schedule III(b): Loan Amortization

Slide24

DCF: NI to BTCF

Slide25

Schedule I: BTCF to ATCF

If TI > 0, -TI * MtxR

If TI < 0, TI * MtxR

Slide26

Schedule IV-V: CGTaxes on Sale & AT Proceeds

Schedule IV: AT Proceeds

Schedule V: Capital Gain Tax On Sale

If,

CapGain

*

15%

AccDepr * 25%

Slide27

Schedule I: Cash Flow 1- 10

Slide28

Introduction to DCF Ratios:

Key Financial Indicators

Slide29

Schedule VI: Financial Ratios

Slide30

Schedule VI: Financial Ratios

Slide31

Debt Coverage Ratio

InterpretationDCR provides a measure of the safety of the mortgage position, indicates the cushion between required payments and NOI.DCR’s should normally be 1.2 or moreEquation

DCR: 1.3 Target

Slide32

Lecture Review

Slide33

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Slide37


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