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The net present value or present
value is shown in the basic analysis,
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this analysis, sensitivity
analysis, risk analysis. Income statements,
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annual statements and utilities, cash
flow analysis, we're going to start off with
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basic to the bottom right. And whenever you're
seeing the cash flows and planEASe,
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even though they're showing annual
or quarterly, everything's been calculated
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on a monthly basis. So here we're
going to switch the period menu item to monthly
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and we can see that it shows the cash
flows monthly and it's been calculated
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that way. A net present value or present
value takes each individual cash flow
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and discounts it back to today,
saying what would be the original amount
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deposited needed to get a given a discount
rate shown here of 10 percent to equal
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that amount? It does that for each
month. Here we have a zero in the beginning,
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so the net present value with a zero
in the beginning is really a present value.
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And how much would we need to deposit
today for these cash flows to be equal
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to a 10 percent compounded annual
return? And that amount would be three million
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331. The definition of present value
is the percent of future cash flow to be
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received over. Amount of years here,
we have 10 from today, as derive the amount
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you would need to deposit today,
drawing interest rate compounded yearly,
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which here we have a 10 percent
to accumulate the cash flow dollars
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and the 10 years or whatever amount
of years you have. The interest rate used
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in the calculation is called the present
value discount rate. Here it is at 10
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percent and the net present value of an investment
is a sum of all the present
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value of all future cash flows. Thus
the initial amount invested here we have
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a loan that we would be getting on the cash
before tax. So the amount, the net
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present value of that where 10
percent is three point five, that includes
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the the loan. So let's exit and put
in an amount this time. So we're here,
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we're going to put four million
dollars in and now we're going to look at more as
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a net present value. So here we're
putting in we're saying we're going to spend,
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we're saying we're going to spend
four million and what will we need to do
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to make 10 percent? And here it shows
negative. So we need to spend that much
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less six hundred seventy seven
thousand dollars, less than the four million
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to equal 10 percent whenever you're IRR
is less than your discount rate, your present
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value net present value will be
negative by definition. And whenever the IRR
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is greater than your discount
rate, it will be positive. And that
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is because the IRR simply goes and finds
the present, the discount rate that makes
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a net present value zero. So that's the definition
of that. Now, let's exit and go
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to the investors page. This is where you put
in your discount rates and you can
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have a different discount rate for different
cash flows. So here you have
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it before debt of 10 will make the before tax
11 and the after tax. Just
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to emphasize a point, I'm going to make
it three percent. So now we go to Basic
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and we're now we can see that
the discount rate is shown differently
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for the different kind of cash
flows. Here's a cash before debt and then
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before tax. And then page three is going
to show the cash flow after tax.
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And we made that cash for the discount
rate after tax, three percent. The IRR
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is higher than three three point
eight. So by definition, the net present value
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is going to be positive because we could
spend this much more money and still make
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three percent. You can start the cash
flows and any what you want here remodify
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the cash, goes to twelve point seven
and have them go however long you want,
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will make it. 98 years and we go to basic
to the bottom right. Or you can go up
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to 99 years here, it calculates
monthly, but all the way out the skull to show
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the cash flows yearly. And we can
see that we're going out to. 2105,
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and it calculates the net present
value for all that time, we're going to exit
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back and change the. Change that back
to 10 years. You can also do any individual
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lease if you go to lease analysis,
it's going to show you the present value.
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Of just this particular lease and also
the annual present value and if we go
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to summary, it'll show you the present
value that is the net present value,
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but it's shown present value just
means that we start off with the zero dollar
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amount. So what is the present value
of these leases discounted back to today?
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Also, if we go to the report,
annual statements. You're going to be able
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to have the. A net present value for each
year going out that assumes all the cash
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flows up to that point and a sale and that
year will go to the income statements.
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At the bottom of the income
statements, you're going to have the. Net present
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value is as long as you show them
with this check mark and here are the net
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present value, assuming that you have
the cash flows up to that point. So from this
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point discounted back to the beginning,
what is the net present value
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of the present value? Here's a net
present value and we're going to exit. You can
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also go into the utilities cash for analysis
and import. The cash flows here
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will do before tax. And you can use
this to. Validate in the net present value
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inside of Microsoft Excel or Google
spreadsheets against the XIRR and XNPV
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planEASe will match. Those
are an XNPV inside of Microsoft
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Excel and Google spreadsheets now
will exit. And the key to these things
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is when you go to sensitivity, one of the great
things about their present value
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is it takes all the assumptions
into account. But that is the weakness
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because a weak assumption could very
or skew the net present value. So here we're
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going to do is very the the sale
price parameter, a 10 percent cap rate
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at the end against the net present
value before tax and will vary that from six
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to 10 and steps at point five. And when we vary
that. All the assumptions are being
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taken to account when we see this.
This line. And. That's important. The reason
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why this is important is that. Since that
prison vote takes everything into account,
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you want to see what is it sensitive
to? And we can go and vary anything that
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you've entered employees and very
it, for instance, just the vacancy factor.
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And we run that that's take into account
the vacancy factor over time,
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Centerstone Monthly, we could be
very specific and say when specific releases
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and and they go into the renewal
process, how long how many months will they be
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vacant if they do leave and you have to get
a new tenant, we run that and planning
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is taking the varying that and doing
it on a monthly basis. And you can see how
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that's shown. Also, you can vary
multiple assumptions at the same time against
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the net present value here will
put the inflation rate, the cap rate.
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And the general vacancy and credit
loss and very that against the net present
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value after tax and we'll do 500. For each
one of these iterations, it's actually
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doing a whole new net present value,
each net present value is in this case 10 years
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or so, 120 months, and it's randomly
selecting out of the top here. So for one
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scenario, it might pick an inflation
rate of two, a cap rate of eleven and a general
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vacancy factor of two. And that
might be the lowest net present value shown.
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And then it might be a highest
inflation rate, a low cap rate and a low rate.
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I don't think it's any credit loss
that would be the highest net present value.
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And then you can do this. And the cumulative
distribution or a probability
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distribution. And we'll make it a little
easier to look at. And these are the kind
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of things that you want to be able to do
when you're looking at a net present value
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time, value of money measure is very
the things that are making up the net present
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value, and that takes some of the negatives
away from the net present value
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in that you are very things that might be
sensitive to.