Analysis Assumptions Report

Sale/Leaseback Investment Base

The first thing you must evaluate is the amount of money he would realize from selling his building currently (Investment Base). Your client, Jack, owns his 20,000 square foot industrial building in which he imports foreign-made computers to resell to business and industry. He built the building 10 years ago (in 1991) for a total cost of $450,000 on land that he acquired for $50,000. He has taken straight-line depreciation over a 31.5 year life and he financed the property with a $400,000 mortgage over 20 years at 9% fixed interest.

Investment Assumptions
Price of Property   $500,000.00
Date of Acquisition   1 January 1991
Holding Period   10 Years
Inflation Rate   Zero
Sale Price Method   Sale Price = $800,000.00
Selling Costs   10%
     
Investor's Assumptions
General Vacancy & Credit Loss   Zero
Tax Rate - First Year   35%
Tax Rate - Following Years   35%
Capital Gain Rate   35%
Cost Recovery Recapture Rate   35% - Losses Taken Currently
Present Value Discount Rate Before Debt   12% per Year
Present Value Discount Rate Before Tax   12% per Year
Present Value Discount Rate After Tax   12% per Year
     
Depreciation Assumptions
Depreciable Amount   $450,000.00
Depreciable Life   31.5 Years
Depreciation Method   Straight Line
Depreciation Start Date   at Acquisition
     
Loan Assumptions
Loan Amount   $400,000.00
Loan Interest Rate   9% Annually
Original Loan Period   20 Years
Loan Origination Date   at Acquisition
Loan Type   Monthly Payments, Amortizing
     


     


Property Sale Report

Sale/Leaseback Investment Base

This report shows that Jack would net $309,314 (Investment Base) from the sale of the building after paying transaction costs, repaying the loan balance, and paying Capital Gain Tax.

Analysis of Sale Proceeds      
Sale Price (as discussed above) $800,000    
  - Costs of Sale (10%) 80,000    
  - Loan Balances 284,102    
  - Prepayment Penalties 0    
Sale Proceeds Before Tax     $435,898
       
Analysis of Capital Gain Results      
Sale Price $800,000    
  - Capitalized Costs of Sale (100%) 80,000    
Net Sale Price for Tax Purposes   $720,000  
       
Property Basis at Acquisition $500,000    
  + Capitalized Closing Costs (100%) 0    
  + Capital Additions 0    
  - Depreciation Taken 141,667    
  + Excess Depreciation Recaptured 0    
Adjusted Basis at Sale   358,333  
Capital Gain (or Loss)   $361,667  
  - Suspended Passive Losses   0  
Net Capital Gain (or Loss)   $361,667  
  - Cost Recovery Recaptured   141,667  
Adjusted Net Capital Gain (or Loss)   $220,000  
Cost Recovery Recapture Tax (@ 35%)     (49,583)
Tax on Adjusted Net Capital Gain (@ 35%)     (77,000)
       
Expenses Recognized at Sale      
Expensed Costs of Sale 0    
  + Accrued Loan Interest 0    
  + Unamortized Points 0    
  + Prepayment Penalties 0    
  - Excess Depreciation Recaptured 0    
Total Expenses Recognized at Sale   0  
Tax Savings Due to Sale Expenses (@ 35%)     0
Net Taxable Income   $361,667  
After Tax Cash Proceeds of Sale     $309,314


     


Sale Proceeds After Tax

Sale/Leaseback Investment Base



     


Analysis Assumptions Report

Sale/Leaseback Difference

Now, you set up the assumptions associated with Jack continuing to hold the building and foregoing the investment (Stay and not Sell).

Investment Assumptions
Price of Property   $593,416.00
Date of Acquisition   1 January 2001
Holding Period   10 Years
Inflation Rate   Zero
Sale Price Method   Sale Price = $1,058,000.00
Selling Costs   10%
     
Investor's Assumptions
General Vacancy & Credit Loss   Zero
Tax Rate - First Year   35%
Tax Rate - Following Years   35%
Capital Gain Rate   35%
Cost Recovery Recapture Rate   35% - Losses Taken Currently
Present Value Discount Rate Before Debt   12% per Year
Present Value Discount Rate Before Tax   12% per Year
Present Value Discount Rate After Tax   12% per Year
     
Building Depreciation Assumptions
Depreciable Amount   $450,000.00
Depreciable Life   31.5 Years
Depreciation Method   Straight Line w/o First Half Period Rule
Recapture Method   Excess Over Straight Line
Depreciation Start Date   at Acquisition
     
Set Substitute Basis Assumptions

Basis is set to the original $500,000 cost of the property, less $142,262 taken prior to 1 January 2001 (half-month in first year, and full year for 2000 means $141,667 in the Investment Base report must be increased to $142,262)
Substitute Basis   $357,738.00
Prior Cost Recovery Taken   $142,262.00
     
Loan Assumptions
Loan Amount   $400,000.00
Loan Interest Rate   9% Annually
Original Loan Period   20 Years
Loan Origination Date   1 January 1991
Loan Type   Monthly Payments, Amortizing
     
Lease Payment Revenue Assumptions
Annual Revenue   $80,000.00
Revenue Start Date   at Acquisition
Revenue Period   5 Years
Revenue Growth Method   No Growth is Projected
     
Lease Payment Second 5 Years Revenue Assumptions
Annual Revenue   $92,000.00
Revenue Start Date   Continuation
Revenue Period   5 Years
Revenue Growth Method   No Growth is Projected
     


     


Analysis Assumptions Report

Sale/Leaseback Difference

Now, you set up the assumptions associated with Jack continuing to hold the building and foregoing the investment (Stay and not Sell).

Investment Assumptions
Price of Property   $593,416.00
Date of Acquisition   1 January 2001
Holding Period   10 Years
Inflation Rate   Zero
Sale Price Method   Sale Price = $1,058,000.00
Selling Costs   10%
     
Investor's Assumptions
General Vacancy & Credit Loss   Zero
Tax Rate - First Year   35%
Tax Rate - Following Years   35%
Capital Gain Rate   35%
Cost Recovery Recapture Rate   35% - Losses Taken Currently
Present Value Discount Rate Before Debt   12% per Year
Present Value Discount Rate Before Tax   12% per Year
Present Value Discount Rate After Tax   12% per Year
     
Building Depreciation Assumptions
Depreciable Amount   $450,000.00
Depreciable Life   31.5 Years
Depreciation Method   Straight Line w/o First Half Period Rule
Recapture Method   Excess Over Straight Line
Depreciation Start Date   at Acquisition
     
Set Substitute Basis Assumptions

Basis is set to the original $500,000 cost of the property, less $142,262 taken prior to 1 January 2001 (half-month in first year, and full year for 2000 means $141,667 in the Investment Base report must be increased to $142,262)
Substitute Basis   $357,738.00
Prior Cost Recovery Taken   $142,262.00
     
Loan Assumptions
Loan Amount   $400,000.00
Loan Interest Rate   9% Annually
Original Loan Period   20 Years
Loan Origination Date   1 January 1991
Loan Type   Monthly Payments, Amortizing
     


     


Real Estate Investment Analysis

Sale/Leaseback Difference

  Buy 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sell Total
Before Tax Cash Flow Projection                          
  Investment and Sale (593,416) 0 0 0 0 0 0 0 0 0 0 952,200 358,784
  Effective Income 0 0 0 0 0 0 0 0 0 0 0 0 0
  Operating Expense 0 0 0 0 0 0 0 0 0 0 0 0 0
  Cash Flow Before Debt (593,416) 0 0 0 0 0 0 0 0 0 0 952,200 358,784
  Debt Service 284,102 (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,183) 0 (147,763)
  Cash Flow Before Tax (309,314) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,183) 952,200 211,021
Taxable Income Projection                          
  Taxable Revenue 0 0 0 0 0 0 0 0 0 0 0 0 0
  Taxable Expense 0 0 0 0 0 0 0 0 0 0 0 0 0
  Interest Expense 0 (24,824) (23,101) (21,217) (19,156) (16,902) (14,436) (11,739) (8,789) (5,563) (2,033) 0 (147,763)
  Depreciation 0 (14,286) (14,286) (14,286) (14,286) (14,286) (14,286) (14,286) (14,286) (14,286) (13,690) 0 (142,262)
  Ordinary Income 0 (39,110) (37,387) (35,503) (33,442) (31,188) (28,722) (26,025) (23,075) (19,848) (15,724) 0 (290,025)
After Tax Cash Flow Projection                          
  Cash Flow Before Tax (309,314) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,187) (43,183) 952,200 211,021
  Ordinary Income 0 (39,110) (37,387) (35,503) (33,442) (31,188) (28,722) (26,025) (23,075) (19,848) (15,724) 0 (290,025)
  Capital Gains 0 0 0 0 0 0 0 0 0 0 0 736,724 736,724
  Taxable Income 0 (39,110) (37,387) (35,503) (33,442) (31,188) (28,722) (26,025) (23,075) (19,848) (15,724) 736,724 446,699
  Taxes 0 13,688 13,086 12,426 11,705 10,916 10,053 9,109 8,076 6,947 5,503 (257,853) (156,345)
  Cash Flow After Tax (309,314) (29,499) (30,101) (30,761) (31,482) (32,271) (33,134) (34,078) (35,111) (36,240) (37,679) 694,347 54,677


Rate of Return Before Debt (IRR) 4.9%
Rate of Return Before Tax (IRR) 3.5%
Rate of Return After Tax (IRR) 1.1%
Net Present Value Before Debt @12% (286,833)
Net Present Value Before Tax @12% (261,109)
Net Present Value After Tax @12% (278,559)

     


Analysis Assumptions Report

Sale/Leaseback Lease

Investment Assumptions
Price of Property   None
Date of Acquisition   1 January 2001
Holding Period   10 Years
Inflation Rate   Zero
Sale Price Method   No Sale Price Specified
     
Investor's Assumptions
General Vacancy & Credit Loss   Zero
Tax Rate - First Year   35%
Tax Rate - Following Years   35%
Capital Gain Rate   35%
Cost Recovery Recapture Rate   35% - Losses Taken Currently
Present Value Discount Rate Before Debt   12% per Year
Present Value Discount Rate Before Tax   12% per Year
Present Value Discount Rate After Tax   12% per Year
     
Lease Payment Revenue Assumptions
Annual Revenue   ($80,000.00)
Revenue Start Date   at Acquisition
Revenue Period   5 Years
Revenue Growth Method   No Growth is Projected
     
Lease Payment Second 5 Years Revenue Assumptions
Annual Revenue   ($92,000.00)
Revenue Start Date   Continuation
Revenue Period   5 Years
Revenue Growth Method   No Growth is Projected
     


     


Real Estate Investment Analysis

Sale/Leaseback Difference

  Buy 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sell Total
Before Tax Cash Flow Projection                          
  Investment and Sale 0 0 0 0 0 0 0 0 0 0 0 0 0
  Effective Income 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Operating Expense 0 0 0 0 0 0 0 0 0 0 0 0 0
  Cash Flow Before Debt 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Debt Service 0 0 0 0 0 0 0 0 0 0 0 0 0
  Cash Flow Before Tax 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
Taxable Income Projection                          
  Taxable Revenue 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Taxable Expense 0 0 0 0 0 0 0 0 0 0 0 0 0
  Interest Expense 0 0 0 0 0 0 0 0 0 0 0 0 0
  Depreciation 0 0 0 0 0 0 0 0 0 0 0 0 0
  Ordinary Income 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
After Tax Cash Flow Projection                          
  Cash Flow Before Tax 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Ordinary Income 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Capital Gains 0 0 0 0 0 0 0 0 0 0 0 0 0
  Taxable Income 0 (80,000) (80,000) (80,000) (80,000) (80,000) (92,000) (92,000) (92,000) (92,000) (92,000) 0 (860,000)
  Taxes 0 28,000 28,000 28,000 28,000 28,000 32,200 32,200 32,200 32,200 32,200 0 301,000
  Cash Flow After Tax 0 (52,000) (52,000) (52,000) (52,000) (52,000) (59,800) (59,800) (59,800) (59,800) (59,800) 0 (559,000)


Rate of Return Before Debt (IRR) 0.0%
Rate of Return Before Tax (IRR) 0.0%
Rate of Return After Tax (IRR) 0.0%
Net Present Value Before Debt @12% (504,615)
Net Present Value Before Tax @12% (504,615)
Net Present Value After Tax @12% (328,000)

     


Sensitivity Analysis Comparison

Present Value Discount Rate After Tax
versus
Net Present Value After Tax @12%

Assumption
Value		 LeaseBack
NPV		 Cont. Own
NPV
Zero (559,000) 54,677
2% per Year (505,381) (38,082)
4% per Year (459,254) (111,123)
6% per Year (419,376) (168,733)
8% per Year (384,734) (214,224)
10% per Year (354,502) (250,165)
12% per Year (328,000) (278,559)
14% per Year (304,669) (300,971)
16% per Year (284,043) (318,631)
18% per Year (265,738) (332,507)
20% per Year (249,428) (343,365)


     


Sensitivity Analysis Comparison

Sale Price Parameter
versus
Net Present Value After Tax @12%

Assumption
Value		 LeaseBack
NPV		 Cont. Own
NPV
No Sale Price Computed (328,000) (317,737)
No Sale Price Computed (328,000) (301,727)
No Sale Price Computed (328,000) (285,716)
No Sale Price Computed (328,000) (269,706)
No Sale Price Computed (328,000) (253,696)
No Sale Price Computed (328,000) (237,686)