This document provides a 30-year pro forma analysis of an investment property in San Diego, California. It outlines key assumptions and projected financial details including purchase price, loan amounts, rental income, operating expenses, debt service, cash flows, taxes, and projected property value over 30 years. The analysis estimates an after-tax cash flow of $36,359.19 in year 1 and projected property value growth from $500,000 to nearly $1,000,000 over the 30-year period.

1. Sample Investment PropertyAverage Inland
San Diego HomeASSUMPTIONS: No CAPX (Capital Expenses)
- As some analysis puts them above NOI, and others below
NOIPurchase Price$ (500,000.00)Building Value68%$
340,000.00Loan to Value70%Maximum for Investment
Property: 70%Loan Amount$ 350,000.00Down Payment$
(150,000.00)Loan Costs1.0%$ (3,500.00)Interest
RateAnnual6.500%Loan TermMonths360Closing Costs2.0%$
(10,000.00)See Estimated Settlement Statement for Detailed
BreakdownTotal Costs at Acquisition$
(163,500.00)PROFORMAYear 0Year 1Year 2Year 3Year 4Year
5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13Year
14Year 15Year 16Year 17Year 18Year 19Year 20Year 21Year
22Year 23Year 24Year 25Year 26Year 27Year 28Year 29Year
30Year 31Gross Rent4%$ 28,800.00$ 29,952.00$
31,150.08$ 32,396.08$ 33,691.92$ 35,039.60$ 36,441.18$
37,898.83$ 39,414.78$ 40,991.37$ 42,631.02$ 44,336.26$
46,109.71$ 47,954.10$ 49,872.26$ 51,867.15$ 53,941.84$
56,099.51$ 58,343.49$ 60,677.23$ 63,104.32$ 65,628.49$
68,253.63$ 70,983.78$ 73,823.13$ 76,776.06$ 79,847.10$
83,040.98$ 86,362.62$ 89,817.12$ 93,409.80Vacancy4.0%$
(1,152.00)$ (1,198.08)$ (1,246.00)$ (1,295.84)$
(1,347.68)$ (1,401.58)$ (1,457.65)$ (1,515.95)$
(1,576.59)$ (1,639.65)$ (1,705.24)$ (1,773.45)$
(1,844.39)$ (1,918.16)$ (1,994.89)$ (2,074.69)$
(2,157.67)$ (2,243.98)$ (2,333.74)$ (2,427.09)$
(2,524.17)$ (2,625.14)$ (2,730.15)$ (2,839.35)$
(2,952.93)$ (3,071.04)$ (3,193.88)$ (3,321.64)$
(3,454.50)$ (3,592.68)$ (3,736.39)Other Income0%$ - 0$ -
0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0Effective Gross
Income$ 27,648.00$ 28,753.92$ 29,904.08$ 31,100.24$
32,344.24$ 33,638.02$ 34,983.53$ 36,382.88$ 37,838.19$

2. 39,351.72$ 40,925.78$ 42,562.81$ 44,265.32$ 46,035.94$
47,877.37$ 49,792.46$ 51,784.17$ 53,855.53$ 56,009.75$
58,250.14$ 60,580.15$ 63,003.35$ 65,523.48$ 68,144.43$
70,870.20$ 73,705.02$ 76,653.22$ 79,719.34$ 82,908.12$
86,224.44$ 89,673.41OPERATING EXPENSESProperty Taxes
1.1%2%$ (5,500.00)$ (5,610.00)$ (5,722.20)$ (5,836.64)$
(5,953.37)$ (6,072.44)$ (6,193.89)$ (6,317.77)$
(6,444.13)$ (6,573.01)$ (6,704.47)$ (6,838.56)$
(6,975.33)$ (7,114.84)$ (7,257.14)$ (7,402.28)$
(7,550.33)$ (7,701.34)$ (7,855.37)$ (8,012.48)$
(8,172.73)$ (8,336.18)$ (8,502.90)$ (8,672.96)$
(8,846.42)$ (9,023.35)$ (9,203.82)$ (9,387.90)$
(9,575.66)$ (9,767.17)$ (9,962.51)Insurance: Fire3%$
(1,000.00)$ (1,030.00)$ (1,060.90)$ (1,092.73)$
(1,125.51)$ (1,159.28)$ (1,194.06)$ (1,229.88)$
(1,266.78)$ (1,304.78)$ (1,343.92)$ (1,384.24)$
(1,425.77)$ (1,468.54)$ (1,512.60)$ (1,557.98)$
(1,604.72)$ (1,652.86)$ (1,702.45)$ (1,753.52)$
(1,806.13)$ (1,860.31)$ (1,916.12)$ (1,973.60)$
(2,032.81)$ (2,093.79)$ (2,156.60)$ (2,221.30)$
(2,287.94)$ (2,356.58)$ (2,427.28)Insurance: EQ3%$
(650.00)$ (669.50)$ (689.59)$ (710.28)$ (731.59)$
(753.54)$ (776.15)$ (799.43)$ (823.41)$ (848.11)$
(873.55)$ (899.76)$ (926.75)$ (954.55)$ (983.19)$
(1,012.69)$ (1,043.07)$ (1,074.36)$ (1,106.59)$
(1,139.79)$ (1,173.98)$ (1,209.20)$ (1,245.48)$
(1,282.84)$ (1,321.33)$ (1,360.97)$ (1,401.80)$
(1,443.85)$ (1,487.17)$ (1,531.79)$ (1,577.74)Insurance:
Umbrella3%$ (250.00)$ (257.50)$ (265.23)$ (273.19)$
(281.39)$ (289.83)$ (298.52)$ (307.48)$ (316.70)$
(326.20)$ (335.99)$ (346.07)$ (356.45)$ (367.14)$
(378.15)$ (389.49)$ (401.17)$ (413.21)$ (425.61)$
(438.38)$ (451.53)$ (465.08)$ (479.03)$ (493.40)$
(508.20)$ (523.45)$ (539.15)$ (555.32)$ (571.98)$
(589.14)$ (606.81)Homeowners Assoc3%$ (1,200.00)$
(1,236.00)$ (1,273.08)$ (1,311.27)$ (1,350.61)$

3. (1,391.13)$ (1,432.86)$ (1,475.85)$ (1,520.13)$
(1,565.73)$ (1,612.70)$ (1,661.08)$ (1,710.91)$
(1,762.24)$ (1,815.11)$ (1,869.56)$ (1,925.65)$
(1,983.42)$ (2,042.92)$ (2,104.21)$ (2,167.34)$
(2,232.36)$ (2,299.33)$ (2,368.31)$ (2,439.36)$
(2,512.54)$ (2,587.92)$ (2,665.56)$ (2,745.53)$
(2,827.90)$ (2,912.74)Maintenance3%$ (3,000.00)$
(3,090.00)$ (3,182.70)$ (3,278.18)$ (3,376.53)$
(3,477.83)$ (3,582.16)$ (3,689.62)$ (3,800.31)$
(3,914.32)$ (4,031.75)$ (4,152.70)$ (4,277.28)$
(4,405.60)$ (4,537.77)$ (4,673.90)$ (4,814.12)$
(4,958.54)$ (5,107.30)$ (5,260.52)$ (5,418.34)$
(5,580.89)$ (5,748.32)$ (5,920.77)$ (6,098.39)$
(6,281.34)$ (6,469.78)$ (6,663.87)$ (6,863.79)$
(7,069.70)$ (7,281.79)Landscape0%$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0Utilities0%$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0Management Fee 10%4%$
(2,764.80)$ (2,875.39)$ (2,990.41)$ (3,110.03)$
(3,234.43)$ (3,363.81)$ (3,498.36)$ (3,638.29)$
(3,783.82)$ (3,935.17)$ (4,092.58)$ (4,256.28)$
(4,426.53)$ (4,603.59)$ (4,787.73)$ (4,979.24)$
(5,178.41)$ (5,385.55)$ (5,600.97)$ (5,825.01)$
(6,058.01)$ (6,300.33)$ (6,552.34)$ (6,814.43)$
(7,087.01)$ (7,370.49)$ (7,665.31)$ (7,971.92)$
(8,290.80)$ (8,622.43)$ (8,967.33)Total Operating Expenses$
(14,364.80)$ (14,768.39)$ (15,184.11)$ (15,612.32)$
(16,053.43)$ (16,507.86)$ (16,976.00)$ (17,458.32)$
(17,955.28)$ (18,467.32)$ (18,994.96)$ (19,538.69)$
(20,099.02)$ (20,676.50)$ (21,271.69)$ (21,885.14)$
(22,517.47)$ (23,169.28)$ (23,841.21)$ (24,533.91)$
(25,248.06)$ (25,984.35)$ (26,743.52)$ (27,526.31)$
(28,333.52)$ (29,165.93)$ (30,024.38)$ (30,909.72)$

4. (31,822.87)$ (32,764.71)$ (33,736.20)NET OPERATING
INCOME$ 13,283.20$ 13,985.53$ 14,719.97$ 15,487.92$
16,290.81$ 17,130.16$ 18,007.53$ 18,924.56$ 19,882.91$
20,884.40$ 21,930.82$ 23,024.12$ 24,166.30$ 25,359.44$
26,605.68$ 27,907.32$ 29,266.70$ 30,686.25$ 32,168.54$
33,716.23$ 35,332.09$ 37,019.00$ 38,779.96$ 40,618.12$
42,536.68$ 44,539.09$ 46,628.84$ 48,809.62$ 51,085.25$
53,459.73$ 55,937.21Debt ServiceInterest$ - 0Principal$ -
0Total Debt Service$ (26,546.88)$ - 0BTCF (Before Tax
Cash Flow)$ (13,263.68)$ 55,937.21BTCF (Before Tax Cash
Flow)$ (13,263.68)$ 55,937.21Tax Calculation (Include
BTCF)add Principal Reduction$ - 0minus Depreciation27.5$
340,000$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(6,181.82)$ - 0$ - 0$ - 0minus Amortization$ - 0$ - 0$ -
0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0Taxable Income (Loss)$
55,937.21Tax Paid (Tax Reduction) 35%Tax Rate$
19,578.02AFTER TAX CASH FLOW$ 36,359.19Property
Value8.0%$ 500,000.00$ 540,000.00$ 583,200.00$
629,856.00$ 680,244.48$ 734,664.04$ 793,437.16$
856,912.13$ 925,465.11$ 999,502.31$ 1,079,462.50$
1,165,819.50$ 1,259,085.06$ 1,359,811.86$ 1,468,596.81$
1,586,084.56$ 1,712,971.32$ 1,850,009.03$ 1,998,009.75$
2,157,850.53$ 2,330,478.57$ 2,516,916.86$ 2,718,270.21$
2,935,731.82$ 3,170,590.37$ 3,424,237.60$ 3,698,176.61$
3,994,030.73$ 4,313,553.19$ 4,658,637.45$ 5,031,328.44$
5,433,834.72Loan PayoffMatch with Amortization
ScheduleCommissions6.0%$ (326,030.08)Closing Costs2.0%$
(108,676.69)Before Tax Sale ProceedsINCOME TAX

5. CALULATION FOR CAPITAL APPRECIATIONSale Price$
5,433,834.72minus Purchase Price$ (500,000.00)minus
Acquisition Costs$ (10,000.00)minus Commissions$
(326,030.08)minus Sales Costs$ (108,676.69)Total Capital
Gain
(Sale Price - Adj Basis)$ 4,489,127.94Depreciation
Recapture$ 340,000.1025%$ (85,000.03)Income Tax: Cap
Gain$ 4,149,127.8415%$ (622,369.18)Total Income Tax$
4,489,127.94$ (707,369.20)Net After Tax Sale
ProceedsTOTAL CASH FLOW$ (163,500.00)IRR Hurdle
RateAlternative Investment OR "Risk Free" Interest
Rate9.0%IRR in excess of Hurdle RateFINAL DECISION: If
positive, then investIRR PARTITIONINGTotal IRRPartition to
Cap AppZero B55, If "#NUM!" then IRR not allocated to Cap
App0Cap App0.00%Partition to Tax BenefitZero Row 47-
510Tax Benefit0.00%Partition to Equity IncreaseZero Row
410Equity Incr0.00%Partition to Cash
FlowCalculatedCalculatedCash Flow0.00%0IRR0.00%NOTE:
To Reduce Number of Years in ProForma, take the following
steps: (Example reducing ProForma to 6 years)1. Delete
Columns for Year 6 through Year 30 (Column I through AG
inclusive)2. Copy Fill from H17-H59 inclusive to I17-I59
Inclusive to re-establish formulas from 2nd-to-last-year
column3. Fix Last Year Interest by adding 12 to the link from
H39 into I39 (Cell I39 becomes [='Sample HomeBuy Amort
Sch'!I86]3. Fix Last Year Principal by adding 12 to the link
from H40 into I40 (Cell I40 becomes [='Sample HomeBuy
Amort Sch'!H86]
&"Arial,Regular"&14&K000000Sample Class Proforma
&18Name: ________________________
&"Arial,Regular"&10&K000000Page &P of &N 11/7/14 6:29
PM
Sample Investment Amort SchAssumptions in Proforma:Stable
compounding rate for income, expenses & pricesExpenses are a

6. function of rent priceAcqusition on Jan 1 of YearDisposition on
Dec 31 of YearTax Reductions are fully offset by other income
(otherwise lost)Straight Line Depreciation & AmortizationLoan
Amount350,000.00 Term360 30 Interest
Rate0.54%6.50%Payment(2,212.24)(26,546.88)Add as
Negative
NumberPeriodBeginning BalInterestPrincipalPaymentAddt
PymtEnd BalAnnual
PrincipalAnnual
Interest1 350,000.00 (1,895.83)0.00 2 0.00 3 0.00 4 0.00 5 0.00
6 0.00 7 0.00 8 0.00 9 0.00 10 0.00 11 0.00 12 0.00 13 0.00 14
0.00 15 0.00 16 0.00 17 0.00 18 0.00 19 0.00 20 0.00 21 0.00 22
0.00 23 0.00 24 0.00 25 0.00 26 0.00 27 0.00 28 0.00 29 0.00 30
0.00 31 0.00 32 0.00 33 0.00 34 0.00 35 0.00 36 0.00 37 0.00 38
0.00 39 0.00 40 0.00 41 0.00 42 0.00 43 0.00 44 0.00 45 0.00 46
0.00 47 0.00 48 0.00 49 0.00 50 0.00 51 0.00 52 0.00 53 0.00 54
0.00 55 0.00 56 0.00 57 0.00 58 0.00 59 0.00 60 0.00 61 0.00 62
0.00 63 0.00 64 0.00 65 0.00 66 0.00 67 0.00 68 0.00 69 0.00 70
0.00 71 0.00 72 0.00 73 0.00 74 0.00 75 0.00 76 0.00 77 0.00 78
0.00 79 0.00 80 0.00 81 0.00 82 0.00 83 0.00 84 0.00 85 0.00 86
0.00 87 0.00 88 0.00 89 0.00 90 0.00 91 0.00 92 0.00 93 0.00 94
0.00 95 0.00 96 0.00 97 0.00 98 0.00 99 0.00 100 0.00 101 0.00
102 0.00 103 0.00 104 0.00 105 0.00 106 0.00 107 0.00 108
0.00 109 0.00 110 0.00 111 0.00 112 0.00 113 0.00 114 0.00
115 0.00 116 0.00 117 0.00 118 0.00 119 0.00 120 0.00 121
0.00 122 0.00 123 0.00 124 0.00 125 0.00 126 0.00 127 0.00
128 0.00 129 0.00 130 0.00 131 0.00 132 0.00 133 0.00 134
0.00 135 0.00 136 0.00 137 0.00 138 0.00 139 0.00 140 0.00
141 0.00 142 0.00 143 0.00 144 0.00 145 0.00 146 0.00 147
0.00 148 0.00 149 0.00 150 0.00 151 0.00 152 0.00 153 0.00
154 0.00 155 0.00 156 0.00 157 0.00 158 0.00 159 0.00 160
0.00 161 0.00 162 0.00 163 0.00 164 0.00 165 0.00 166 0.00
167 0.00 168 0.00 169 0.00 170 0.00 171 0.00 172 0.00 173
0.00 174 0.00 175 0.00 176 0.00 177 0.00 178 0.00 179 0.00
180 0.00 181 0.00 182 0.00 183 0.00 184 0.00 185 0.00 186
0.00 187 0.00 188 0.00 189 0.00 190 0.00 191 0.00 192 0.00

7. 193 0.00 194 0.00 195 0.00 196 0.00 197 0.00 198 0.00 199
0.00 200 0.00 201 0.00 202 0.00 203 0.00 204 0.00 205 0.00
206 0.00 207 0.00 208 0.00 209 0.00 210 0.00 211 0.00 212
0.00 213 0.00 214 0.00 215 0.00 216 0.00 217 0.00 218 0.00
219 0.00 220 0.00 221 0.00 222 0.00 223 0.00 224 0.00 225
0.00 226 0.00 227 0.00 228 0.00 229 0.00 230 0.00 231 0.00
232 0.00 233 0.00 234 0.00 235 0.00 236 0.00 237 0.00 238
0.00 239 0.00 240 0.00 241 0.00 242 0.00 243 0.00 244 0.00
245 0.00 246 0.00 247 0.00 248 0.00 249 0.00 250 0.00 251
0.00 252 0.00 253 0.00 254 0.00 255 0.00 256 0.00 257 0.00
258 0.00 259 0.00 260 0.00 261 0.00 262 0.00 263 0.00 264
0.00 265 0.00 266 0.00 267 0.00 268 0.00 269 0.00 270 0.00
271 0.00 272 0.00 273 0.00 274 0.00 275 0.00 276 0.00 277
0.00 278 0.00 279 0.00 280 0.00 281 0.00 282 0.00 283 0.00
284 0.00 285 0.00 286 0.00 287 0.00 288 0.00 289 0.00 290
0.00 291 0.00 292 0.00 293 0.00 294 0.00 295 0.00 296 0.00
297 0.00 298 0.00 299 0.00 300 0.00 301 0.00 302 0.00 303
0.00 304 0.00 305 0.00 306 0.00 307 0.00 308 0.00 309 0.00
310 0.00 311 0.00 312 0.00 313 0.00 314 0.00 315 0.00 316
0.00 317 0.00 318 0.00 319 0.00 320 0.00 321 0.00 322 0.00
323 0.00 324 0.00 325 0.00 326 0.00 327 0.00 328 0.00 329
0.00 330 0.00 331 0.00 332 0.00 333 0.00 334 0.00 335 0.00
336 0.00 337 0.00 338 0.00 339 0.00 340 0.00 341 0.00 342
0.00 343 0.00 344 0.00 345 0.00 346 0.00 347 0.00 348 0.00
349 0.00 350 0.00 351 0.00 352 0.00 353 0.00 354 0.00 355
0.00 356 0.00 357 0.00 358 0.00 359 0.00 360 0.00 Totals0.00
&"Arial,Regular"&14&K000000Sample Proforma Amortization
Schedule
&"Arial,Regular"&10&K000000Page &P of &N 11/7/14
The Case Assignment focuses on several concepts from the
labor market including marginal production, total production,
and wage determination. These terms are important in
determining how many workers a firm will hire.

8. Write a 4- to 5-page paper that’s addresses the following
questions:
1 . Discuss two factors that would increase demand for labor.
(Hint: Recall that the demand for factors of production or
resources is called a derived demand)
2 . If the market price of the good or service that a firm
produces increases, what happen to the demand of labor?
Explain.
3 . Numerical Problems. Answer the two questions below.
a. Take a look at the numerical example on page 76 of the
online text Principles of Microeconomics. What would be the
marginal production at a level of 20 workers? Calculate. What
can be said about the total production of cars as more workers
are added (Hint: use the economic concept from the chapter in
your answer)?
b. Using your answer from (a) and using the information below:
i. Each worker costs the firm $4,000 per month.
ii. Each acre of land costs the firm $1,000 per month.
iii. Each machine costs the firm $600 per month.
-Each worker costs the firm $4,000 per month.
-Price of the output (car) is $20,000
Should the firm move from the 15th to the 20th worker? In other
words, should the firm hire 20 workers? Why? (Hint: You need
to calculate the cost of total workers and the marginal revenue
product [MRP = price of output * marginal product of labor].)
Assignment Expectations
Use concepts from the modular background readings as well as
any good-quality resources you can find. Be sure to cite all
sources within the text and provide a reference list at the end of
the paper.

9. Length: 4–5 pages double-spaced and typed.
Font: Times New Roman
The following items will be assessed in particular:
· Your ability to understand marginal productivity and how
firms make decisions.
· Some in-text references to the modular background material
(APA formatting not required).
The essay should address each element of the assignment.
Remember to support your answers with solid references
including the case readings.
Sample Investment PropertyAverage Inland
San Diego HomeASSUMPTIONS: No CAPX (Capital Expenses)
- As some analysis puts them above NOI, and others below
NOIPurchase Price$ (500,000.00)Building Value68%$
340,000.00Loan to Value70%Maximum for Investment
Property: 70%Loan Amount$ 350,000.00Down Payment$
(150,000.00)Loan Costs1.0%$ (3,500.00)Interest
RateAnnual6.500%Loan TermMonths360Closing Costs2.0%$
(10,000.00)See Estimated Settlement Statement for Detailed
BreakdownTotal Costs at Acquisition$
(163,500.00)PROFORMAYear 0Year 1Year 2Year 3Year 4Year
5Year 6Gross Rent4%$ 28,800.00$ 29,952.00$ 31,150.08$
32,396.08$ 33,691.92$ 35,039.60Vacancy4.0%$ (1,152.00)$
(1,198.08)$ (1,246.00)$ (1,295.84)$ (1,347.68)$
(1,401.58)Other Income0%$ - 0$ - 0$ - 0$ - 0$ - 0$ -
0Effective Gross Income$ 27,648.00$ 28,753.92$
29,904.08$ 31,100.24$ 32,344.24$ 33,638.02OPERATING
EXPENSESProperty Taxes 1.1%2%$ (5,500.00)$
(5,610.00)$ (5,722.20)$ (5,836.64)$ (5,953.37)$
(6,072.44)Insurance: Fire3%$ (1,000.00)$ (1,030.00)$
(1,060.90)$ (1,092.73)$ (1,125.51)$ (1,159.28)Insurance:
EQ3%$ (650.00)$ (669.50)$ (689.59)$ (710.28)$
(731.59)$ (753.54)Insurance: Umbrella3%$ (250.00)$

10. (257.50)$ (265.23)$ (273.19)$ (281.39)$
(289.83)Homeowners Assoc3%$ (1,200.00)$ (1,236.00)$
(1,273.08)$ (1,311.27)$ (1,350.61)$
(1,391.13)Maintenance3%$ (3,000.00)$ (3,090.00)$
(3,182.70)$ (3,278.18)$ (3,376.53)$
(3,477.83)Landscape0%$ - 0$ - 0$ - 0$ - 0$ - 0$ -
0Utilities0%$ - 0$ - 0$ - 0$ - 0$ - 0$ - 0Management
Fee 10%4%$ (2,764.80)$ (2,875.39)$ (2,990.41)$
(3,110.03)$ (3,234.43)$ (3,363.81)Total Operating Expenses$
(14,364.80)$ (14,768.39)$ (15,184.11)$ (15,612.32)$
(16,053.43)$ (16,507.86)NET OPERATING INCOME$
13,283.20$ 13,985.53$ 14,719.97$ 15,487.92$ 16,290.81$
17,130.16Debt ServiceInterestPrincipalTotal Debt Service$
(26,546.88)BTCF (Before Tax Cash Flow)$ (13,263.68)BTCF
(Before Tax Cash Flow)$ (13,263.68)Tax Calculation (Include
BTCF)add Principal Reductionminus Depreciation27.5$
340,000$ (12,363.64)$ (12,363.64)$ (12,363.64)$
(12,363.64)$ (12,363.64)$ (12,363.64)minus Amortization$
- 0$ - 0$ - 0$ - 0$ - 0$ - 0Taxable Income (Loss)Tax Paid
(Tax Reduction) 35%Tax RateAFTER TAX CASH
FLOWProperty Value8.0%$ 500,000.00$ 540,000.00$
583,200.00$ 629,856.00$ 680,244.48$ 734,664.04$
793,437.16Loan PayoffMatch with Amortization
ScheduleCommissions6.0%$ (47,606.23)Closing Costs2.0%$
(15,868.74)Before Tax Sale ProceedsINCOME TAX
CALULATION FOR CAPITAL APPRECIATIONSale Price$
793,437.16minus Purchase Price$ (500,000.00)minus
Acquisition Costs$ (10,000.00)minus Commissions$
(47,606.23)minus Sales Costs$ (15,868.74)Total Capital Gain
(Sale Price - Adj Basis)$ 219,962.19Depreciation Recapture$
74,181.8425%$ (18,545.46)Income Tax: Cap Gain$
145,780.3515%$ (21,867.05)Total Income Tax$ 219,962.19$
(40,412.51)Net After Tax Sale ProceedsTOTAL CASH FLOW$
(163,500.00)IRR Hurdle RateAlternative Investment OR "Risk
Free" Interest Rate9.0%IRR in excess of Hurdle RateFINAL
DECISION: If positive, then investIRR PARTITIONINGTotal

11. IRRPartition to Cap AppZero B55, If "#NUM!" then IRR not
allocated to Cap App0Cap App0.00%Partition to Tax
BenefitZero Row 47-510Tax Benefit0.00%Partition to Equity
IncreaseZero Row 410Equity Incr0.00%Partition to Cash
FlowCalculatedCalculatedCash Flow0.00%0IRR0.00%NOTE:
To Reduce Number of Years in ProForma, take the following
steps: (Example reducing ProForma to 6 years)1. Delete
Columns for Year 6 through Year 30 (Column I through AG
inclusive)2. Copy Fill from H17-H59 inclusive to I17-I59
Inclusive to re-establish formulas from 2nd-to-last-year
column3. Fix Last Year Interest by adding 12 to the link from
H39 into I39 (Cell I39 becomes [='Sample HomeBuy Amort
Sch'!I86]3. Fix Last Year Principal by adding 12 to the link
from H40 into I40 (Cell I40 becomes [='Sample HomeBuy
Amort Sch'!H86]
&"Arial,Regular"&14&K000000Sample Class Proforma
&18Name: ________________________
&"Arial,Regular"&10&K000000Page &P of &N 11/7/14 6:30
PM
Sample Investment Amort SchAssumptions in Proforma:Stable
compounding rate for income, expenses & pricesExpenses are a
function of rent priceAcqusition on Jan 1 of YearDisposition on
Dec 31 of YearTax Reductions are fully offset by other income
(otherwise lost)Straight Line Depreciation & AmortizationLoan
Amount350,000.00 Term360 30 Interest
Rate0.54%6.50%Payment(2,212.24)(26,546.88)Add as
Negative
NumberPeriodBeginning BalInterestPrincipalPaymentAddt
PymtEnd BalAnnual
PrincipalAnnual
Interest1 350,000.00 (1,895.83)2 0.00 3 0.00 4 0.00 5 0.00 6
0.00 7 0.00 8 0.00 9 0.00 10 0.00 11 0.00 12 0.00 13 0.00 14
0.00 15 0.00 16 0.00 17 0.00 18 0.00 19 0.00 20 0.00 21 0.00 22
0.00 23 0.00 24 0.00 25 0.00 26 0.00 27 0.00 28 0.00 29 0.00 30

12. 0.00 31 0.00 32 0.00 33 0.00 34 0.00 35 0.00 36 0.00 37 0.00 38
0.00 39 0.00 40 0.00 41 0.00 42 0.00 43 0.00 44 0.00 45 0.00 46
0.00 47 0.00 48 0.00 49 0.00 50 0.00 51 0.00 52 0.00 53 0.00 54
0.00 55 0.00 56 0.00 57 0.00 58 0.00 59 0.00 60 0.00 61 0.00 62
0.00 63 0.00 64 0.00 65 0.00 66 0.00 67 0.00 68 0.00 69 0.00 70
0.00 71 0.00 72 0.00 73 0.00 74 0.00 75 0.00 76 0.00 77 0.00 78
0.00 79 0.00 80 0.00 81 0.00 82 0.00 83 0.00 84 0.00 85 0.00 86
0.00 87 0.00 88 0.00 89 0.00 90 0.00 91 0.00 92 0.00 93 0.00 94
0.00 95 0.00 96 0.00 97 0.00 98 0.00 99 0.00 100 0.00 101 0.00
102 0.00 103 0.00 104 0.00 105 0.00 106 0.00 107 0.00 108
0.00 109 0.00 110 0.00 111 0.00 112 0.00 113 0.00 114 0.00
115 0.00 116 0.00 117 0.00 118 0.00 119 0.00 120 0.00 121
0.00 122 0.00 123 0.00 124 0.00 125 0.00 126 0.00 127 0.00
128 0.00 129 0.00 130 0.00 131 0.00 132 0.00 133 0.00 134
0.00 135 0.00 136 0.00 137 0.00 138 0.00 139 0.00 140 0.00
141 0.00 142 0.00 143 0.00 144 0.00 145 0.00 146 0.00 147
0.00 148 0.00 149 0.00 150 0.00 151 0.00 152 0.00 153 0.00
154 0.00 155 0.00 156 0.00 157 0.00 158 0.00 159 0.00 160
0.00 161 0.00 162 0.00 163 0.00 164 0.00 165 0.00 166 0.00
167 0.00 168 0.00 169 0.00 170 0.00 171 0.00 172 0.00 173
0.00 174 0.00 175 0.00 176 0.00 177 0.00 178 0.00 179 0.00
180 0.00 181 0.00 182 0.00 183 0.00 184 0.00 185 0.00 186
0.00 187 0.00 188 0.00 189 0.00 190 0.00 191 0.00 192 0.00
193 0.00 194 0.00 195 0.00 196 0.00 197 0.00 198 0.00 199
0.00 200 0.00 201 0.00 202 0.00 203 0.00 204 0.00 205 0.00
206 0.00 207 0.00 208 0.00 209 0.00 210 0.00 211 0.00 212
0.00 213 0.00 214 0.00 215 0.00 216 0.00 217 0.00 218 0.00
219 0.00 220 0.00 221 0.00 222 0.00 223 0.00 224 0.00 225
0.00 226 0.00 227 0.00 228 0.00 229 0.00 230 0.00 231 0.00
232 0.00 233 0.00 234 0.00 235 0.00 236 0.00 237 0.00 238
0.00 239 0.00 240 0.00 241 0.00 242 0.00 243 0.00 244 0.00
245 0.00 246 0.00 247 0.00 248 0.00 249 0.00 250 0.00 251
0.00 252 0.00 253 0.00 254 0.00 255 0.00 256 0.00 257 0.00
258 0.00 259 0.00 260 0.00 261 0.00 262 0.00 263 0.00 264
0.00 265 0.00 266 0.00 267 0.00 268 0.00 269 0.00 270 0.00
271 0.00 272 0.00 273 0.00 274 0.00 275 0.00 276 0.00 277

13. 0.00 278 0.00 279 0.00 280 0.00 281 0.00 282 0.00 283 0.00
284 0.00 285 0.00 286 0.00 287 0.00 288 0.00 289 0.00 290
0.00 291 0.00 292 0.00 293 0.00 294 0.00 295 0.00 296 0.00
297 0.00 298 0.00 299 0.00 300 0.00 301 0.00 302 0.00 303
0.00 304 0.00 305 0.00 306 0.00 307 0.00 308 0.00 309 0.00
310 0.00 311 0.00 312 0.00 313 0.00 314 0.00 315 0.00 316
0.00 317 0.00 318 0.00 319 0.00 320 0.00 321 0.00 322 0.00
323 0.00 324 0.00 325 0.00 326 0.00 327 0.00 328 0.00 329
0.00 330 0.00 331 0.00 332 0.00 333 0.00 334 0.00 335 0.00
336 0.00 337 0.00 338 0.00 339 0.00 340 0.00 341 0.00 342
0.00 343 0.00 344 0.00 345 0.00 346 0.00 347 0.00 348 0.00
349 0.00 350 0.00 351 0.00 352 0.00 353 0.00 354 0.00 355
0.00 356 0.00 357 0.00 358 0.00 359 0.00 360 0.00 Totals0.00
&"Arial,Regular"&14&K000000Sample Proforma Amortization
Schedule
&"Arial,Regular"&10&K000000Page &P of &N 11/7/14
REAL 320 – Principles of Real Estate
ASSIGNMENT #2 – Buy Your First Investment
1. Please print out and turn in an excel spreadsheet, in which
you have
prepared a ProForma reflecting the information provided below.
You are considering purchasing a neighborhood location which
would be perfect
for an Olive Garden location. You’ve spoken with an Olive
Garden site selection
manager, who is excited about your proposed location, and now
you need to
determine if the purchase makes economic sense.

14. You have retained Lou Galuppo of the University of San Diego,
who is an expert
in providing forecasting assumptions regarding your proposed
site. Lou has
estimated that there is a very high probability that you would
earn an 11% rate of
return by investing in the “Corleone Godfather Fund,” which is
an independent
portfolio of publicly traded securities, known for extremely
predictable earnings,
especially in turbulent stock market conditions.
After paying Lou’s outrageous fee of $30,000.00 for his data,
you sit down to
decide whether you should invest in the real estate, buy the
securities portfolio,
or quit the business and retire by working for your relatives in
Palermo.
REPORT FROM LOU GALUPPO
Dear Prospective Olive Garden Property Location Owner:
At your request, I have completed my analysis of the market
conditions for this
property. At the location you are considering, an appraisal has
been completed
on the property, and you can purchase the property, built to
Olive Garden
specifications, for $6,300,000.00 ($2,300,000.00 for the land,
and $4,000,000.00
for the building). At the close of escrow, you can expect to pay
about 2.7% of the
purchase price in closing costs.

15. Because this is a commercial investment property, Pavarotti
Bank Services, LLC
can provide you with the best commercial loan at the lowest
interest rate – a no-
cost, no-points 30 year amortized loan at a fixed 6.75% interest
rate. The
maximum loan-to-value you can borrow is 70% of the purchase
price. Loan
costs are estimated at .8% of the value of the loan. You will
need to personally
guarantee the loan.
Page ! of ! 1 4
Additionally, Pavarotti Bank Services, LLC will require you to
create a single
asset California-based LLC in order to hold this property. It
will cost you
$3,000.00 to set up the LLC, and each year your accountant has
estimated that
you will pay only the $800.00 minimum California Franchise
Tax Board Fee for
the entity.
This property will appreciate at an annual 5% compounded rate
for the term of
ownership. Your closing costs at the time of sale will be 8% of
the sale price at
that time, inclusive of a 5.0% commission and 3.0% for other
closing costs.
Olive Garden has agreed to pay annual base rent calculated as
8% of the
purchase price of the property, increasing 5% each year.

16. Additionally, Olive
Garden will share its profits with you as part of the lease. Olive
Garden
estimates that your portion of the profits will be $75,000.00 per
year, estimated to
increase at 5% per year over the course of ownership. Olive
Garden will be your
only tenant, and they have already signed a 20 year lease, to be
effective on the
date construction is completed. They have guaranteed payment
of both the
rental and incentive payment, even if they no longer have an
Olive Garden at this
location.
The negotiated lease is a triple-net lease, meaning that Olive
Garden will pay for
taxes, insurance, and maintenance on the property. We have
agreed, however,
to pay for the Owners Association fee for the common area,
which is $2,000.00
per month (estimated to increase at 4% per year), and the water
supplied to this
location, since Olive Garden’ failure to pay this utility could
cause a lien to be put
on the property. The estimated water bill is $2,800 per month,
and we expect this
cost to increase at 13% per year, given San Diego’s huge water
infrastructure
problems.
Depreciation is calculated over 39 years, your ordinary income
tax rate is 35%,
and your capital gains rate is 20%. Fortunately, you are
fabulously successful,
and have plenty of income to offset any loss – so any tax benefit

17. associated with
having negative income is of real value to you, since it offsets
taxes on other
income streams. You initially expect to hold this property 31
years.
You remember than in calculating an IRR, the initial funds are
negative, since
they represent funds going OUT of your pocket. If you make
any additional
assumptions, they should be reasonable, and clearly outlined on
your paper. Do
not add assumptions unless you are stuck.
Page ! of !2 4
2. After completing your initial evaluation based on Lou
Galuppo’s forecast, you
decide that additional information may help to determine the
strength of your
model. You should prepare additional Excel printouts detailing
the differences
in assumptions.
USD Professor Alan Gin is also a trusted advisor, and has
suggested that the
assumptions provided by Louis Galuppo should be adjusted as
described
below. Alan doesn’t believe that Lou is wrong, lying or
insensitive, but merely
has a different view of the future economic outlook. Sensitivity
Analysis
should be used to test the impact on the return for the following
variables:

18. a. Real Estate Value Appreciation Rate: Real Estate
appreciation is more
likely to come in at 2% per year compounded over the next 10
years.
Also, 2% is a fair amount to use for any relevant holding
period.
b. Holding Period: Perhaps the optimal time to hold this
particular piece of
real estate is 10 years, rather than the 31 years you initially
modeled.
He thinks you should also test holding periods at 5 years and 15
years.
c. Real Estate Rental Rate Appreciation Rate: Alan Gin suggests
that
appreciation of the rental rate will go up only 3% over the next
10
years. Then, while he doesn’t have an opinion, the 3% is a fair
amount
to use for any relevant holding period.
d. Capital Gains Tax Rate: Alan Gin suggests that capital gains
rates will
increase to 25%. Additionally, he thinks that Capital Gains
could go as
high as 35%.
e. Ordinary Income Tax Rate: Alan Gin believes that the
ordinary tax rate
(both Federal and State combined) will increase to 45% this
year.
f. Water Rate: Future water problems are likely to be extremely
acute,

19. and will result in a 40% annual increase in water costs.
g. Interest Rate: The interest rates will drop to 4.5%
h. Triple Net Lease: Instead of offering a triple net lease, where
the tenant
pays for maintenance, taxes and insurance, you should consider
the
economic impact of a lease where the landlord is responsible for
the
following costs:
• Property Taxes at 1.1% of the total purchase price of the
property
• Fire and Hazard Insurance at $8,000.00 per year
• Maintenance costs estimated at $15,000.00 per year
Page ! of !3 4
3. Please provide a 2-3 page executive summary summarizing
your findings
describing why or why not the investment described in this
assignment
should be made.
Your narrative should describe the differences between the
Galuppo
Assumptions and the Gin Assumptions, and should identify the
five input
assumptions which are most sensitive to your rate of return.
If it turns out that only the Galuppo Assumptions or the Gin
Assumptions
suggest you should make the investment, then you should
provide an

20. analysis as to whether you should make the investment or not.
Remember,
the investment can either be made, or not be made – you cannot
make the
investment only premised on the most favorable set of
assumptions.
4. Complete the Comprehensive Peer Evaluation for yourself
and your group,
pursuant to the instructions in the Syllabus and on the
evaluation form.
Page ! of !4 4