(1). the cash flow for the last year of project NPV, if company have house NBV 20Mil, but we sell at 13mil, is the cash flow for house sell equals to (13-20)*(1-T) when we calculate NPV? (2). in real estate investment, what’s the difference between debt service and morgage balance, is debt service principal or intestest? is mortage balance including interest? (3) in replacement project, if the depreciation of new asset is 40, and depreciation of asset is 30, should we minus (40-30)*T for tax thield or add 40*T for tax shield? (4) in LBO valuation, when we caluclate final year cash flow should we add or minus depreciation? is there any depreciation tax shield in final year LBO valuation?
You use should check out an example in the book. Question 1, you would have a tax asset of 7milllion X Tax 2. In the finance section you never subtract interest from the cash flows because it is included in your discount rate. Debt service would be reduction in principal i think. 3. In a replacement project only INCREMENTAL cash flows are included. You would only use the 10 mil increase in depreciation time tax. 4. LBO"s have nothing to do with the above questions, are you getting term mixed? you should always include depreciation effects in any of the cashflows. If you have a long term capital gain you are tax on your accumulated Depreciation since the asset did not depreciate.
Thanks. (1), so the NPV will be Project without sell +7mil*tax? or 7*(1-T)? is it same as selling at 27? (2) then what’s the difference between debt service and mortage balance? (4)LBO do have reinvested depreciation,the problem is I think add, but my collegue says we should deduct. it is a non cash expense. why?
7mill time T will be the credit you get for selling at a loss, this will be added. Real estate has this weird 2 step cash flow. You take NOI subtract interest and depreciation time (1-t)= taxes payable. Then you start from NOI again subtract debt service and then taxes payable. Look it up, its easily explained. I don’t remember any depreciation in LBO, all the calculations just reduce debt as far as i remember.
so you mean sells over NBV is X*(1-T), while sells below NBV is X*T(why not 1-T)? X is gain or loss
you said book value 20 sell for 13, 7 million loss , time Tax is your credit switch the values around you pay taxes on 7 million
This is quite strange, from text, it says: S-Tax*(sale-NBV), regardless of selling above NBV or below NBV, thus it should be (13-20)*T, reduce NPV instead of increase NPV correct me if wrong
linping85 Wrote: ------------------------------------------------------- > This is quite strange, from text, it says: > S-Tax*(sale-NBV), regardless of selling above NBV > or below NBV, thus it should be (13-20)*T, reduce > NPV instead of increase NPV > > correct me if wrong It will be S - Tax (sale-NBV) -7 x T which will make Terminal cash flow positive which will increase. - x - makes +
so it is 13+7*T, but justinkc says it should be 7*T, thus I hold defferent view
thats correct, was only referring to the tax
During calculation of FCFF, we need to minus FCInv, given Gross Fixed asset 1000USD , NBV 800 USD in year 2008, Gross fixed asset 700, NBV 400 in year 2009 so how to calculate FCInv? is it (700-1000)? or (400-800)?
700-1000
my opinion changes to FCInv : -100 (800+FcInv-300=400)