HP 12c Owners Manual
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Section 12: Real Estate and Lending 131 File name: hp 12c_users guide_English_HDPMBF12E44 Page: 131 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm KEYSTROKES DISPLAY KEYSTROKES DISPLAY :1 10- 45 1- 44- 30 - 11- 30:5 45- 45 5 $ 12- 13- 46- 30 :3 13- 45 3:8 47- 45 8 gC 14- 43 12+ 48- 40 :2 15- 45 2- 49- 30 gA 16- 43 11Þ 50- 16 P 17- 14P 51- 14 d 18- 33:0 52- 45 0 d 19- 33gA 53- 43 11 0 20- 0:1 54- 45 1 n 21- 11:6 55- 45 6 :0 22- 45 0+ 56- 40 1 23- 1Þ 57- 16 2 24- 2$ 58- 13 § 25- 20¼ 59- 12 f! 26- 42 11:gC 60-45 43 12 d 27- 33t 61- 31 d 28- 33:9 62- 45 9 d 29- 33gC 63- 43 12 :$ 30- 45 13M 64- 15 + 31- 40fs Þ 32- 16
132 Section 12: Real Estate and Lending
File name: hp 12c_users guide_English_HDPMBF12E44 Page: 132 of 209
Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm
REGISTERS
n: Period i: Apprec. PV: Price PMT: Used
FV: Used
R0: Period R1: Dwn Pmt R2: Life
R3: i(Mtg) R4: Taxes/Mo R5: Improve. R6: Closing C.
R7: % Comm. R8: Rent R9: Savings i R.0: Bracket
R.1: Unused.
1. Key in the program.
2. Key in the estimated down payment then press ?1.
3. Key in the life of the mortgage then press ?2.
4. Key in the annual mortgage interest rate then press ?3.
5. Key in the estimated monthly taxes then press ?4.
6. Key in the total amount estimated for monthly repairs, improvements,
incremental insurance, utility costs, and other expenses, then press ?5.
7. Key in the closing costs then press ?6.
8. Key in the selling cost as a percentage of the selling price. This should
include sales commission, escrow fees, etc. then press ?7.
9. Key in the monthly rent for the alternative housing then press ?8.
10. Key in the savings or alternative investment annual interest rate as a
percentage then press ?9.
11. Key in the combined State and Federal marginal tax rate
* as a percentage
then press ?.0.
12. Press fCLEARG then key in the number of years involved in the
investment; press n.
13. Key in the estimated rate of yearly appreciation as a percentage then press
¼.
14. Key in the price of the house under consideration then press $.
15. Press t to compute the net proceeds from the sale of the house. (A
negative value indicates money lost.)
* The user should key in the total marginal income tax — Federal plus State — to obtain
calculations which reflect the tax advantages of home ownership. Because of the complexities
of tax laws and different financial and tax considerations for each individual, this program
should only serve as a guide in considering an investment of this type. For more specific,
detailed information, consult a tax accountant or qualified tax advisor.
Section 12: Real Estate and Lending 133
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16. Press t to compute the yield on your investment in the house.*
17. Press t to compute the value of a savings account or other investment.
18. Compare the value of the hypothetical savings account to the net proceeds of
the sale of the house. Examine the sign and magnitude of the yield to arrive
at your decision.
19. To change data and repeat the calculations, store the changed values in the
appropriate registers and go to step 12.
Example:
You are being transferred for 4 years to a distant city and are faced
with the decision of whether to rent or to buy a house. A quick survey of the
housing market indicates that you can purchase an acceptable house for $70,000
with a $7,000 down payment on a 30 year mortgage at 12% interest. The closing
costs would be about $1200. Selling costs include a 6% commission for resale
and miscellaneous other fees that amount to another 2% of the sale price. Housing
in the area is appreciating 10% per year. Property taxes would be about $110
per month, and you estimate that maintenance would cost an additional $65 per
month.
An alternative would be to rent a similar dwelling at $400 per month and to invest
the difference between the purchase cost and rent at 6
1/4% interest. Your personal
income tax rate (marginal) is 25% Federal and 5% State. Which alternative is
more financially attractive?
Keystrokes Display
fCLEARH
0.00
7000?1
7,000.00 Down payment.
30?2
30.00 Life of mortgage.
12?3
12.00 Interest rate.
110?4
110.00 Property taxes.
65?5
65.00 Monthly expenses.
1200?6
1,200.00 Closing costs.
8?7
8.00 Resale costs (as a percentage).
400?8
400.00 Rent.
6.25?9
6.25 Savings interest rate.
30?.0
30.00 Tax bracket.
fCLEARG
30.00 Clear financial registers.
* If the calculator displays a negative result or Error 5 when solving for yield then your
investment has resulted in a loss. The amount of interest earned on the alternative investment
is not taken into account in this calculation.
134 Section 12: Real Estate and Lending File name: hp 12c_users guide_English_HDPMBF12E44 Page: 134 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm Keystrokes Display 4n 4.00 Years in investment. 10¼ 10.00 Yearly appreciation rate. 70000$ 70,000.00 House price. t 32,391.87 NCPR (calculated). t 19.56 Yield. t 21,533.79 Balance in savings. By purchasing a house, you would gain $10,858.08 (32,391.87 – 21,533.79) over an alternate investment at 6.25% interest. Deferred Annuities Sometimes transactions are established where payments do not begin for a specified number of periods; the payments are deferred. The technique for calculating NPV may be applied assuming zero for the first cash flow. Refer to pages 58 through 62. Example 1: You have just inherited $20,000 and wish to put some of it aside for your daughter’s college education. You estimate that when she is of college age, 9 years from now, she will need $7,000 at the beginning of each year for 4 years for college tuition and expenses. You wish to establish a fund which earns 6% annually. How much do you need to deposit in the fund today to meet your daughter’s educational expenses? Keystrokes Display fCLEARH 0.00 Initialize. 0gJ 0.00 First cash flow. 0gK 8ga 0.00 8.00 Second through ninth cash flows. 7000gK 4ga 7,000.00 4.00 Tenth through thirteenth cash flows. 6¼ 6.00 Interest. fl 15,218.35 NPV.
Section 12: Real Estate and Lending 135 File name: hp 12c_users guide_English_HDPMBF12E44 Page: 135 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm Leases often call for periodic contractual adjustments of rental payments. For example, a 2-year lease calls for monthly payments (at the beginning of the month) of $500 per month for the first 6 months, $600 per month for the next 12 months, and $750 per month for the last 6 months. This situation illustrates what is called a “step-up” lease. A “step-down” lease is similar, except that rental payments are decreased periodically according to the lease contract. Lease payments are made at the beginning of the period. In the example cited, the rental payment stream for months 7 through 24 are “deferred annuities,” as they start at some time in the future. The cash flow diagram from the investor’s viewpoint looks like this: To find today’s present value of the cash flows assuming a desired yield, the NPV technique may be used. (Refer to pages 58 thru 62.) Example 2: A 2-year lease calls for monthly payments (at the beginning of the month) of $500 per month for the first 6 months, $600 per month for the next 12 months, and $750 per month for the last 6 months. If you wish to earn 13.5% annually on these cash flows, how much should you invest (what is the present value of the lease)? Keystrokes Display fCLEARH 0.00 Initialize. 500gJ 500.00 First cash flow. gK 5ga 500.00 5.00 Second thru sixth cash flows. 600gK 12ga 600.00 12.00 Next twelve cash flows. 750gK 6ga 750.00 6.00 Last six cash flows. 13.5gC 1.13 Monthly interest rate. fl 12,831.75 Amount to invest to achieve a 13.5% yield.
136 File name: hp 12c_users guide_English_HDPMBF12E44 Page: 136 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm Section 13 Investment Analysis Pa r t i al -Ye a r De prec ia t io n For both income tax purposes and financial analyses, it is valuable to calculate depreciation based on a calendar or fiscal accounting year. When the acquisition date of an asset does not coincide with the start of the year — which is the rule rather than the exception — the amounts of depreciation in the first and last years are computed as fractions of a full year’s depreciation. Straight-Line Depreciation The following hp 12c program calculates the straight-line depreciation for the year desired with the acquisition date occurring at any time during the year. KEYSTROKES DISPLAY KEYSTROKES DISPLAY fs - 21- 30 fCLEARÎ 00- n 22- 11 1 01- 1:0 23- 45 0 2 02- 2gm 24- 43 35 z 03- 10gi35 25-43, 33 35 ?1 04- 44 1:2 26- 45 2 ~ 05- 34gu 27- 43 31 ?2 06- 44 2:0 28- 45 0 1 07- 1fV 29- 42 23 - 08- 30t 30- 31 ?0 09- 44 01 31- 1 1 10- 1?=0 32-44 40 0 fV 11- 42 23?=2 33-44 40 2 :1 12- 45 1gi26 34-43, 33 26 § 13- 20:2 35- 45 2
Section 13: Investment Analysis 137
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KEYSTROKES DISPLAY KEYSTROKES DISPLAY
?3 14- 44 3gu 36- 43 31
:$ 15- 45 13:$ 37- 45 13
~ 16- 34:M 38- 45 15
- 17- 30- 39- 30
$ 18- 13:3 40- 45 3
:n 19- 45 11gi30 41-43, 33 30
:1 20- 45 1fs
REGISTERS
n: Life i: Unused PV: Dep. Value PMT: Unused
FV: Salvage
R0: Used R1: #Mos./12 R2: Counter
R3: 1st Yr. Dep. R4–R.4: Unused
1. Key in the program.
2. Press fCLEARG.
3. Key in the book value then press $.
4. Key in the salvage value then press M.
5. Key in the life in years (an integer) then press n.
6. Key in the year desired then press \.
7. Key in the number of months in the first year and press t.
* The display
will show the amount of depreciation for the desired year. If desired, press
~ to see the remaining depreciable value then press
:$:3=~-:M- to find the total depreciation from the
first year through the current year.
8. Press t for the amount of depreciation and remaining depreciable value
for the next year. Repeat this step for the following years.
9. For a new case, press gi00 and return to step 2.
* The display will pause showing the year number before showing the amount of depreciation
for that year.
138 Section 13: Investment Analysis File name: hp 12c_users guide_English_HDPMBF12E44 Page: 138 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm Note: If the number of months in the first calendar year is less than 12, the amount of depreciation in the 1st year will be less than a full year’s depreciation. The actual number of years that depreciation will occur is equal to the life +1. For example, a drill has a life of 3 years and is purchased 3 months before the year end. The following time diagram shows that depreciation will occur over 4 calendar years. Example 1: A property has just been purchased for $150,000. The purchase price is allocated between $25,000 for land and $125,000 for improvements (building). The remaining useful life of the building is agreed to be 25 years. There is no salvage value forecasted at the end of the useful life of the building. Thus, the depreciable value and book value is $125,000. The building was acquired 4 months before the end of the year. Using straight-line depreciation, find the amount of depreciation and remaining depreciable value for the 1st, 2nd, 25th, and 26th years. What is the total depreciation after 3 years? Keystrokes Display fCLEARG Salvage value = 0 so FV = 0. 125000$ 125,000.00 Book value. 25n 25.00 Life. 1\ 1.00 Year desired. 4t ~ 1.00 1,666.67 123,333.33 First year: depreciation, remaining depreciable value. t ~ 2.00 5,000.00 118,333.33 Second year: depreciation, remaining depreciable value. t 3.00 5,000.00 Third year: depreciation. ~:$:3 +~- gi00 11,666.67 Total depreciation through third year. fCLEARG 11,666.67 125000$ 125,000.00 Book value.
Section 13: Investment Analysis 139 File name: hp 12c_users guide_English_HDPMBF12E44 Page: 139 of 209 Printered Date: 2005/7/29 Dimension: 14.8 cm x 21 cm Keystrokes Display 25n 25.00 Life. 25\ 25.00 Year desired. 4t ~ 25.00 5,000.00 3,333.33 Twenty-fifth year: depreciation, remaining depreciable value. t ~ 26.00 3,333.33 0.00 Twenty-sixth year: depreciation, remaining depreciable value. Example 2: A new car was purchased for $6,730 with 4 1/2 months remaining in the year. If the expected life of the car is 5 years, what is the amount of depreciation in the first year? Keystrokes Display gi00 fCLEARG 6730$ 6,730.00 Book value. 5n 5.00 Life. 1\ 1.00 4.5t 1.00 504.75 First year: depreciation. Declining-Balance Depreciation The following hp 12c program calculates the declining-balance depreciation for the year desired with the acquisition date occurring at any time during the year. KEYSTROKES DISPLAY KEYSTROKES DISPLAY fs :0 19- 45 0 fCLEARÎ 00- gm 20- 43 35 1 01- 1gi31 21-43, 33 31 2 02- 2:2 22- 45 2 z 03- 10gu 23- 43 31 ?1 04- 44 1:0 24- 45 0 ~ 05- 34f# 25- 42 25 ?2 06- 44 2t 26- 31
140 Section 13: Investment Analysis
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KEYSTROKES DISPLAY KEYSTROKES DISPLAY
1 07- 11 27- 1
- 08- 30?+0 28-44 40 0
?0 09- 44 0?+2 29-44 40 2
1 10- 1gi22 30-43, 33 22
f# 11- 42 25:2 31- 45 2
:1 12- 45 1gu 32- 43 31
§ 13- 20:$ 33- 45 13
?3 14- 44 3:M 34- 45 15
:$ 15- 45 13- 35- 30
~ 16- 34:3 36- 45 3
- 17- 30gi26 37-43, 33 26
$ 18- 13fs
REGISTERS
n: Life i: Factor PV: Dep. Value PMT: Unused
FV: Salvage
R0: Used R1: #Mos./12 R2: Counter
R3:1st Yr. Dep. R4–R.4: Unused
1. Key in the program.
2. Press fCLEARG.
3. Key in the book value then press $.
4. Key in the salvage value then press M.
5. Key in the declining-balance factor as a percentage then press ¼.
6. Key in the life in years (an integer) then press n.
7. Key in the year desired then press \.
8. Key in the number of months in first year
* and press t.† The display will
show the amount of depreciation for the desired year. Press ~ to see the
* Refer to straight-line depreciation instruction note, page 137.
† The display will pause showing the year number before showing the amount of depreciation
for that year.