Case study solution (Cash Flow Analysis tab) H. Schwarz-Lopes & A. Santos


Published on

Published in: Education
  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Case study solution (Cash Flow Analysis tab) H. Schwarz-Lopes & A. Santos

  1. 1. Actual - Tax ReturnsAdjust to Calculate FutureRecurring Cash Flow CommentsSources of Cash Flow/IncomeSalaries/Wages $647,500 $647,500Salary is derived from DL PA Inc $345M (Dora) + $302M (Brock.) Most banks request3 years of tax returns and they adjust the cash flow to the 3-year average.Schedule B- Interest and DividendsInterest $19,000 $19,000 Has their liquidity increase since the last PFS?Dividends $3,000 $3,000 What is the current income they receive from this assets?Less K -1 Interest and Dividends ($5,000) ($5,000) Can you verify via statements?/ Then, you can projectTotal Cash Flow from Interest and Dividends $17,000 $17,000Schedule C - Business Cash FlowGross Income - Expenses ($2,000) $0 They sold this businessAdd back - non cash expenses (depreciation, amortization) $15,000 $0Add back - interest $11,000 $0Add back - any one time expense $0 $0Total Schedule C - Business Cash Flow $24,000 $0Schedule D - Capital GainsShort Term Capital Gain - Sales Price $0 $0Less Short Term Capital Gain - Cost $0 $0Long Term Capital Gain - Sales Price $1,280,000 $0Total Cash Flow from Capital Gains $1,280,000 $0Form 4797 - Sales of Business PropertySales Price $45,000 $0 Not recurring / one time eventSchedule E - Rental IncomeRental Income - Office Building $230,000 $230,000Remember that they occupy 9,000 sf of the 12,000 sf / income of this real estateproperty primarily depends on their practiceLess - expenses ($261,000) ($261,000)Add back - depreciation $45,000 $45,000 This is a non-cash itemAdd back - interest expense $80,800 $80,800 This will be reflected in the debt service section/do not double countTotal Schedule E - Rental Income $94,800 $94,800Schedule K-1 Are the contributions/distributions required or discretionary?K-2 Shopping Center ltd - contributions ($10,000) ($10,000) How much more the client needs to contribute on the following years?K-2 Shopping Center ltd - distributions $4,000 $4,000Mt. Vison Shopping Center - contributions ($20,000) ($20,000) How much more the client needs to contribute on the following years?Mt. Vison Shopping Center - distributions $1,600 $1,600DL PA Inc (Brock Logans practice) - distribution $15,000 $15,000 These depend on how well the client is doing in there practicesBL PA Inc (Dora Logans practice) - distribution $9,000 $9,000Total Cash Flow - Schedule K -1 ($400) ($400)Total Cash Flow $2,083,900 $758,900Uses of Cash FlowTaxes (estimated at 35% of taxable income/projected income) $416,675 $265,615 lower taxes on the following year/no capital gainsPersonal Expenses (estimated at 15% of taxable income/projected income) $178,575 $113,835 each bank has its policy regarding personal expensesDebt Service - Current LoansLine of Credit $300,000 $0 $0 refinanced - $600M unsecured LOCOther Note Payable (7) $0Auto loans $70,000 $25,000 $25,000 via credit bureauBoat loan $190,000 $15,000 $15,000 via credit bureauMortgage Debt (8)Residence $1,250,000 $0 $0 refinancedOffice Bldg $1,560,000 $0 $0 refinancedLots $200,000 $45,647 $45,647 ask client to provide the repayment termsRequested ProposedPrime Bank - $1.5MM loan (Office Building) $1,425,000 $103,208 $103,208What happened to the $160M sellers note/ we need to add that to the refi/LTV needsto be 75%Unsecured $600M Loc at Prime Bank (interest only) $600,000 $176,931 $176,931 assumes 4 year amo/2% above proposed rateResidential mortgage - $1,750M $1,540,000 $80,426 $80,426 even if it is an arm used 30 year DS/ what happens after the 7 years?RE taxes and insurance are considered DS $54,000*also consider property taxes & insurance (Get this from - Public records/Mortgagearea/client)Not diclosed debtSellers note - $160M loan (Office Building) int only 3 years/then fullyamortizedTotal Uses of Cash Flow $1,041,463 $879,663Net Cash Flow $1,042,437 ($120,763)Total DS $446,213 $446,213DTI 21% 59% Normally the cut off is 50% DTI (DS to CF). What are your mitigantsMost cash flow derived from capital gains is not recurring. Therefore, this cash flowwill not be available to cover the clients expenses and cash flow needs. Note: somebanks allow some specific calculations for asset dissipation. If you do assetdissipation, make sure you deduct the interest/dividends of the assets beingdissipated if you choose to use asset dissipation