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3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA Purchase Price BUILDING DATA Loan % Loan Amount $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Year 1 Potential Gross Income $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income Debt Service $90,000 $94,500 $0 Before Tax Cash Flow $0 $1,710,000 $1,795,500 $800,000 $832,000 $910,000 $963,500 -$707,694 -$707,694 $202,306 $255,806 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,885,275 $865,280 $1,979,539 $899,891 $2,078,516 $2,182,441 $935,887 $973,322 $1,019,995 $1,079,648 $1,142,629 $1,209,119 -$707,694 -$707,694 -$707,694 $312,301 $371,953 $434,935 Reversion Value less: costs of sale $9,176,190 $9,714,238 -$734,095 -$777,139 $10,282,358 $10,882,179 $11,515,420 -$822,589 -$870,574 -$921,234 Remaining Loan Balance -$6,680,585 $6,604,280 Net Sale Proceeds $1,761,510 $2,332,819 -$6,520,403 $2,939,366 -$6,428,201 -$6,326,848 $3,583,404 $4,267,339

3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA Purchase Price BUILDING DATA Loan % Loan Amount $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Year 1 Potential Gross Income $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income Debt Service $90,000 $94,500 $0 Before Tax Cash Flow $0 $1,710,000 $1,795,500 $800,000 $832,000 $910,000 $963,500 -$707,694 -$707,694 $202,306 $255,806 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,885,275 $865,280 $1,979,539 $899,891 $2,078,516 $2,182,441 $935,887 $973,322 $1,019,995 $1,079,648 $1,142,629 $1,209,119 -$707,694 -$707,694 -$707,694 $312,301 $371,953 $434,935 Reversion Value less: costs of sale $9,176,190 $9,714,238 -$734,095 -$777,139 $10,282,358 $10,882,179 $11,515,420 -$822,589 -$870,574 -$921,234 Remaining Loan Balance -$6,680,585 $6,604,280 Net Sale Proceeds $1,761,510 $2,332,819 -$6,520,403 $2,939,366 -$6,428,201 -$6,326,848 $3,583,404 $4,267,339

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA BUILDING DATA Purchase Price Loan % $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% Loan Amount $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Potential Gross Income Year 1 $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income $90,000 $94,500 $0 $0 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,710,000 $1,795,500 $1,885,275 $1,979,539 $2,078,516 $2,182,441 Debt Service Before Tax Cash Flow $800,000 $910,000 -$707,694 -$707,694 $202,306 $255,806 $832,000 $865,280 $899,891 $935,887 $973,322 $963,500 $1,019,995 $1,079,648 $1,142,629 $1,209,119 -$707,694 -$707,694 -$707,694 $312,301 $371,953 $434,935 Reversion Value less: costs of sale $9,176,190 $9,714,238 -$734,095 -$777,139 $10,282,358 $10,882,179 $11,515,420 -$822,589 -$870,574 -$921,234 Remaining Loan Balance Net Sale Proceeds -$6,680,585 $6,604,280 $1,761,510 $2,332,819 -$6,520,403 -$6,428,201 -$6,326,848 $2,939,366 $3,583,404 $4,267,339
Transcribed Image Text:3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA BUILDING DATA Purchase Price Loan % $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% Loan Amount $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Potential Gross Income Year 1 $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income $90,000 $94,500 $0 $0 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,710,000 $1,795,500 $1,885,275 $1,979,539 $2,078,516 $2,182,441 Debt Service Before Tax Cash Flow $800,000 $910,000 -$707,694 -$707,694 $202,306 $255,806 $832,000 $865,280 $899,891 $935,887 $973,322 $963,500 $1,019,995 $1,079,648 $1,142,629 $1,209,119 -$707,694 -$707,694 -$707,694 $312,301 $371,953 $434,935 Reversion Value less: costs of sale $9,176,190 $9,714,238 -$734,095 -$777,139 $10,282,358 $10,882,179 $11,515,420 -$822,589 -$870,574 -$921,234 Remaining Loan Balance Net Sale Proceeds -$6,680,585 $6,604,280 $1,761,510 $2,332,819 -$6,520,403 -$6,428,201 -$6,326,848 $2,939,366 $3,583,404 $4,267,339
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