3. Copy the amortization table tab from this sheet into a new tab on your Case Problem file Then, using the amortization schedule, determine the anticipated remaining mortgage balance at the end of seven years. Using this forecasted future market value, estimate the before tax cash flow from disposal if the property is sold of at the end of the seventh year.

Assume that selling costs (brokerage, legal and accounting fees, and so forth) equal 7% of the selling price.

The formula for Before-Tax Cash Flow from Disposal is:

Sale Price

(Less: Selling Costs, e.g. Commissions)

= Net Sales Proceeds

(Less: Mortgage Balance)

= Before Tax Cash Flow from Sale (Disposal)

Here's the sample table:

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Richard Jenkins is thinking of buying an apartment complex that is offered for sale by WKG Realty, an investment brokerage firm. The listing price of $3,250,000 equals the property's market value. The following statement of income and expense is presented for the buyer's consideration: $504,000 10,000 $514,000 The Pierre Apartments Prior Year's Operating Results. Presented by WKG Realty 30 units, all two-bedroom apartments, $1400 per month Washer and dryer rentals Gross annual income Less operating expense: Manager's salary Maintenance staff (part time) Landscaping and snow removal Property taxes Net operating Income $34,000 12,000 2,500 14,200 62,700 $451,300 By checking the electric meters during an inspection tour of the property, the buyer determines the occupancy rate to be about 80%. He learns, by talking to tenants, that most have been offered inducements such as a months' free rent or special decorating allowances. A check with competing apartment houses reveals that similar apartment units rent for about $1290 per month and that vacancies average about 6%. Moreover, these other apartments have pools and other amenities that make their units worth about $20 more than those of The Pierre Apartments, which have neither. The tax assessor states that the apartments were reassessed 12 months ago and that the current taxes are $85,039. Jenkins learns that the super at the apartment complex, in addition to the $34,000 salary, gets a free apartment for her services. He also discovers other expenses: insurance will cost $7.00 per $1,000 of coverage, based on estimated replacement cost of about $1.9 million workers' compensation ($145 per annum) must be paid to the state; utilities, incurred to light hallways and other common areas, cost about $95 per month for similar properties; supplies and miscellaneous expenses typically run about 0.30% of effective gross income. Professional property management fees in the market area typically are about 6% of effective gross income. Fill in the yellow bbxes only: Loan amount $600,000 Rate 8.00% Amort Term 9 Monthly Payment $7,811 E-pmt(B30/12,B31*12,B29) Amortization Schedule Year Debt Service Interest Principal 1 2 3 2 3 4 5 6 7 UT 8 9 10 11 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO $46,285 $42,347 $38,082 $33,463 $28,460 $23,042 $17,175 $10,820 $3,939 SO SO SO SO SO SO SO SO SO SO SO SO SO 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 $47,450 $51,388 $55,653 $60,272 $65,275 $70,692 $76,560 $82,914 $89,796 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO Balance $600,000 $552,550 =-fv($B$3/12, 12,-B10/12,E9) $501,163 $445,510 $385,238 $319,963 $249,270 $172,711 $89,796 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO 8 8 8 8 8 Richard Jenkins is thinking of buying an apartment complex that is offered for sale by WKG Realty, an investment brokerage firm. The listing price of $3,250,000 equals the property's market value. The following statement of income and expense is presented for the buyer's consideration: $504,000 10,000 $514,000 The Pierre Apartments Prior Year's Operating Results. Presented by WKG Realty 30 units, all two-bedroom apartments, $1400 per month Washer and dryer rentals Gross annual income Less operating expense: Manager's salary Maintenance staff (part time) Landscaping and snow removal Property taxes Net operating Income $34,000 12,000 2,500 14,200 62,700 $451,300 By checking the electric meters during an inspection tour of the property, the buyer determines the occupancy rate to be about 80%. He learns, by talking to tenants, that most have been offered inducements such as a months' free rent or special decorating allowances. A check with competing apartment houses reveals that similar apartment units rent for about $1290 per month and that vacancies average about 6%. Moreover, these other apartments have pools and other amenities that make their units worth about $20 more than those of The Pierre Apartments, which have neither. The tax assessor states that the apartments were reassessed 12 months ago and that the current taxes are $85,039. Jenkins learns that the super at the apartment complex, in addition to the $34,000 salary, gets a free apartment for her services. He also discovers other expenses: insurance will cost $7.00 per $1,000 of coverage, based on estimated replacement cost of about $1.9 million workers' compensation ($145 per annum) must be paid to the state; utilities, incurred to light hallways and other common areas, cost about $95 per month for similar properties; supplies and miscellaneous expenses typically run about 0.30% of effective gross income. Professional property management fees in the market area typically are about 6% of effective gross income. Fill in the yellow bbxes only: Loan amount $600,000 Rate 8.00% Amort Term 9 Monthly Payment $7,811 E-pmt(B30/12,B31*12,B29) Amortization Schedule Year Debt Service Interest Principal 1 2 3 2 3 4 5 6 7 UT 8 9 10 11 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 $93,735 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO $46,285 $42,347 $38,082 $33,463 $28,460 $23,042 $17,175 $10,820 $3,939 SO SO SO SO SO SO SO SO SO SO SO SO SO 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 $47,450 $51,388 $55,653 $60,272 $65,275 $70,692 $76,560 $82,914 $89,796 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO Balance $600,000 $552,550 =-fv($B$3/12, 12,-B10/12,E9) $501,163 $445,510 $385,238 $319,963 $249,270 $172,711 $89,796 SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO SO 8 8 8 8 8