I got the part about getting the pretax return needed to fund their expenses, which was 45k/.8 and it gives you a pretax amount of 56.25…however why do we not do the same thing for the mortgage payment. It says this will be financed from the portfolio and they have to pay 100k to pay off the mortgage, I took this to mean they need to take out 125k from the portfolio and then are taxed at 20% to arrive at the 100k. So I subtracted 125k from their port value rather than 100 and was off on their required return by a little bit. Can someone explain why they do not use the pretax value for the mortgage payment
also to add on…they use the pretax tuition value of 250k (200/.8) as well, which to me is the same thing as the mortgage
it clearly says that withdrawing 100k will take care off mortgage and associated taxes and hence use 100K. This IPS was tough
Yeah I saw that when I read it, but I assumed that meant after taxes… hopefully they will be a little more clear on the real thing…
This was the real thing last year