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A1258690664nCfbY
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$12,500 rental income – PowerPoint PPT presentation
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Title: A1258690664nCfbY
1
Capital (Money) Management Example
Scenario A
ABC Co
XYZ Co
Asset Value 160,000
50 ownership
50 ownership
80,000 equity (cash)
50 control over profit distributions
80,000 equity (cash)
12,500 rental income (3,750) income
tax 8,750 net income
12,500 rental income (3,750) income
tax 8,750 net income
10.9 ROI
ABC Co
XYZ Co
Rent (Dividends) 25,000
- Owned 5050 with partner
- Operated independently
- No assurance of rental income distribution
- Financed with 100 equity (cash)
- 8,750 net income to each partner, if rent
distributed (10.9 ROI)
2
Capital (Money) Management Example
Scenario B
ABC Co
100 Ownership ? 80,000 Cash ? 80,000 Debt
100 control over profit distributions
Asset Value 160,000
Rent (Dividends) 25,000 rental income (4,000)
interest expense (6,300) income tax 14,700 net
income
ABC Co
In reality, this scenario results in
6,000,000/year in additional income to Agrifoods
shareholders
18.4 ROI
Advantages ? Owned 100 ? Operated directly
by owner ? Control over rental income
distribution ? Financed with 50 equity (cash)
and 50 with debt (loan at 5 interest) ?
Lower tax cost because of interest expenses ?
14,700 net income (18.4 return on investment)
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