What happens if the expected house value is not that big? Rather than growing to 140k, we know the house will only increase in value to 110k. What is the ROE under different financing options? And how would you recommend the CFO finance this deal?

House Value Year 1 (Purchase)

Money Put down by purchaser (Down Payment)

Bank Loan (Mortgage)

Interest Paid to Bank (10% loan 50% tax bracket)

House Value at point of sale (after 3 years)

Net Return on house investment (increase in house value payments to bank)

Return on Equity = Net Return / Money put down

$100,000

$100,000

0

0

$110,000

$100,000

$50,000

$50,000

$7,5000

$110,000

$100,000

$20,000

$80,000

$12,000

$110,000