Taking Inflation Into Account

Interest Rate (Annual) 5.0% Year

Term (Years) 10 0
Deposit Per Month ($100) 1
Initial Deposit ($10,000) 2
Deposit Type 0 3
Future Value $31,998.32 4
5
Inflation Rate 2% 6
Present Value (Discount Factor) $26,249.77 7
Present Value (PV() Function) $26,249.77 8
9
10
Discount Factor
1.00
0.98
0.96
0.94
0.92
0.91
0.89
0.87
0.85
0.84
0.82
Income Investing Versus Purchasing a Rental Property
Fixed-Income Yield (Annual) 5.0%
Term (Years) 10
Rental Income (Annual) $24,000
Future Value of Rental Property $1,000,000

Maximum Amount to Pay for Rental Property ($799,235)

Buying Versus Leasing
Discount Rate 6.0%
Term (Years) 2
Lease Payment (Monthly) ($240)
Future Value of Equipment $0
Purchase Price $5,000
Present Value of Leasing Option $5,415.09
Present Value of Buying Option $5,000.00
 Year 0 1 2
CASH FLOW Purchase
Net Cash Flow ($799,235) $24,000 $24,000
Cumulative Net Cash Flow ($799,235) ($775,235) ($751,235)

DISCOUNTING
Discount Rate 5%
Discount Factor 1 0.95 0.91
Discounted Cash Flow ($799,235) $22,857 $21,769
Discounted Cumulative Cash Flow ($799,235) ($776,378) ($754,609)
 3 8 9 10
Sale
$24,000 $24,000 $24,000 $1,024,000
($727,235) ($607,235) ($583,235) $440,765

0.86 0.68 0.64 0.61

$20,732 $16,244 $15,471 $628,647
($733,877) ($644,118) ($628,647) $0
 Year 0 1 2 3 4 5
CASH FLOW Purchase
Net Cash Flow ($799,235) $24,000 $24,000 $24,000 $24,000 $24,000
DISCOUNTING
Discount Rate 5%
Net Present Value $0.00
 6 7 8 9 10
Sale
$24,000 $24,000 $24,000 $24,000 $1,024,000
 Year 0 1 2 3 4
CASH FLOW
Net Cash Flow ($50,000) ($5,000) $15,000 $20,000 $21,000
DISCOUNTING
Discount Rate 10%
Net Present Value $881
 5

$22,000
 Period 0 1 2 3 4
CASH FLOW
Net Cash Flow ($10,000) $2,000 $2,500 $3,000 $2,500
Cash Flow Date 1/1/2018 3/15/2018 8/15/2018 2/15/2022 6/15/2022
DISCOUNTING
Discount Rate 10%
Net Present Value ($780)
 5

$2,000
12/31/2022
 Year 0 1 2
CASH FLOW Purchase
Net Cash Flow ($500,000) $55,000 $75,000
Cumulative Net Cash Flow ($500,000) ($445,000) ($370,000)
Payback Period 6
Exact Payback Period 5.75

DISCOUNTING
Discount Rate 10%
Discount Factor 1 0.91 0.83
Discounted Cash Flow ($500,000) $50,000 $61,983
Discounted Cumulative Cash Flow ($500,000) ($450,000) ($388,017)
Payback Period 9
Exact Payback Period 8.25
 3 4 5 6 7 8

$80,000 $95,000 $105,000 $120,000 $120,000 $120,000

($290,000) ($195,000) ($90,000) $30,000 $150,000 $270,000

0.75 0.68 0.62 0.56 0.51 0.47

$60,105 $64,886 $65,197 $67,737 $61,579 $55,981
($327,911) ($263,025) ($197,828) ($130,091) ($68,512) ($12,532)
 9

$120,000
$390,000

0.42
$50,892
$38,360
 Year 0 1 2 3 4
CASH FLOW
Net Cash Flow ($50,000) ($5,000) $15,000 $20,000 $21,000
DISCOUNTING
Discount Rate 10%
Net Present Value $881
Internal Rate of Return 10.51%
 5

$22,000
 Period 0 1 2 3
CASH FLOW
Net Cash Flow ($10,000) $2,000 $2,500 $3,000
Cash Flow Date 1/1/2022 3/15/2022 8/15/2022 2/15/2023
DISCOUNTING
Discount Rate 10%
Net Present Value $845
Internal Rate of Return 18.99%
 4 5

$2,500 $2,000
6/15/2023 12/31/2023
 Year 0 1 2 3 4
CASH FLOW
Net Cash Flow ($50,000) ($5,000) $15,000 $20,000 $21,000
DISCOUNTING
Finance Rate 8%
Reinvestment Rate 6%
Internal Rate of Return 9.14%
 5

$22,000
PER-UNIT CONSTANTS
List Price $24.95
Average Customer Discount 45%
PP&B $5.00
Cost of Sales $3.75
Author Royalty 7.5%
Margin 12.4%

Year 0 1 2 3
Units Printed 0 50,000 0 0
Units Sold 0 17,000 10,500 4,000

OPERATING COSTS
New Title Costs $0 $2,500 $0 $0
Total PP&B 0 $250,000 $0 $0
Marketing 0 $15,000 $5,000 $2,000
Total Cost of Sales $0 $63,750 $39,375 $15,000
Author Advance $25,000 $0 $0 $0
Author Royalties $0 $6,811 $19,648 $7,485

SALES
$ Sales $0 $233,283 $144,086 $54,890
Translation Rights $0 $5,000 $0 $0
Book Club Rights $0 $0 $1,000 $0

CASH FLOW
Net ($25,000) ($99,779) $81,063 $30,405
Cumulative ($25,000) ($124,779) ($43,716) ($13,311)
Discount Rate 12.4%
Discount Factor 1.00 0.89 0.79 0.70
Discounted Net ($25,000) ($88,748) $64,130 $21,394
Discounted Cumulative ($25,000) ($113,748) ($49,618) ($28,223)

CASH FLOW ANALYSIS

Undiscounted Payback Period 4
Undiscounted Payback Point 3.5
Discounted Payback Period 5
Discounted Payback Point 4.8
Net Present Value ($113,748) ($49,618) ($28,223)
Internal Rate of Return -30.77% -7.36%
 4 5 6 7 8 9 10
0 0 0 0 0 0 0
3,500 3,000 2,500 2,000 1,500 1,500 1,000

$0 $0 $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0
$2,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
$13,125 $11,250 $9,375 $7,500 $5,625 $5,625 $3,750
$0 $0 $0 $0 $0 $0 $0
$6,549 $5,614 $4,678 $3,743 $2,807 $2,807 $1,871

$48,029 $41,168 $34,306 $27,445 $20,584 $20,584 $13,723

$2,500 $0 $0 $0 $0 $0 $0
$0 $0 $1,000 $0 $0 $0 $0

$28,854 $23,304 $20,253 $15,203 $11,152 $11,152 $7,101

$15,544 $38,848 $59,101 $74,303 $85,455 $96,607 $103,708

0.63 0.56 0.50 0.44 0.39 0.35 0.31

$18,059 $12,972 $10,028 $6,695 $4,368 $3,885 $2,200
($10,165) $2,808 $12,835 $19,530 $23,898 $27,784 $29,984
($10,165) $2,808 $12,835 $19,530 $23,898 $27,784 $29,984
6.69% 13.78% 17.87% 20.02% 21.18% 22.06% 22.48%