Appendix

Real Estate

Wrap-Around Mortgage

•n1 = number of years remaining in original mortgage.

•PMT1 = yearly payment of original mortgage.

•PV1 = remaining balance of original mortgage.

•n2 = number of years in wrap-around mortgage.

•PMT2 = yearly payment of wrap-around mortgage.

•r = interest rate of wrap-around mortgage as a decimal.

•FV = balloon payment.

•

PMT2[1 – (1 + r)–n2]PMT1[1 – (1 + r)–n1] ( )–n2PV2 – PV1 = ------------------------------------------------------- – ------------------------------------------------------- + FV 1 + r

rr

After-Tax Cash Flows

•ATCFk = After-Tax Cash Flow for kth year.

•Intk = interest for kth year.

•Depk = depreciation for kth year.

•r = appropriate tax rate.

•NOI = Net Operating Income.

•ATCFk = NOI (1 - r) - 12 x PMT + r x (Intk + Depk).

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)]

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HP 12C manual Appendix, Real Estate, Wrap-Around Mortgage, 150