planease Unit Sales Tutorial

Transcription

1 planease Unit Sales Tutorial Tutorial Notes This tutorial shows you how you would enter the described Unit Sales Development into planease. At the end of page 4 you will have recreated the unitsales.ru sample that you can open by selecting File/Open Assumptions and choosing unitsales.ru. In addition to this tutorial, try the sample index on the Demo CD for more samples on Unit Sales, including a walk-through movie. You must own the Monthly Extension in order to analyze Unit Sales. Introduction You have identified a piece of land that is suitable for approximately 0 homes. Before you proceed forward with a project, a preliminary look at the numbers can tell you if the proposed project will be profitable. This tutorial will walk you through the process of entering general numbers. The same process can be done with greater detail as you get further into the project. This type of development is called Unit Sales because the proposed project will build and sell units. The units can be homes, condos, townhouses, marina slips, office condos, land lots, etc... Page Contents. Introduction. Starting Point - Entering General Information Entering the Investment Page Entering the Investor s Page Unit Sales Dialog - Entering Development Costs & Unit Sales 3. Unit Sale Dialog Continued Adding Draw Loan Unit Sale Dialog Reports! Land - $00,000/Acre! Soft Costs - 0 over months! Hard Costs - 0 over 8 months! Holding Period -.5 years! Inflation Rate - 4%! Unit Prices - 5 $75,000-5 $00,000! Construction Draw 7.5%, interest paid, Discharged based on cost 4. Unit Sale Dialog Reports Continued What do the numbers mean? 5. Reports and Graphs What if Sensitivity 6. What if Risk This is one of the many reports that you will be able to view at the end of the tutorial. Account Unit Sales Profit Unit Sales Amount Unit Sales Planned Model A $,875,000 Model B,000,000 Total Unit Sales Planned $3,875,000 Less: Sale Commissions 0 Net Sales Planned $3,875,000 Less: Costs Planned Land $,00,000 Soft Costs 700,000 Hard Costs,576,000 Total Cost Planned $3,476,000 Profit before Debt Costs $399,000 Less: Draw Loan Interest & Fees $3,489 Project Profit $75,5 SPECIAL NOTE to Win XP users. Microsoft created a small bug in XP for rounding numbers that might create a dollar or two difference in your numbers than the ones shown here. Reference Microsoft Knowledge Base Article - Q3047. What you will Learn Here How to Start a New Analysis How to input Revenues, Loans, Depreciation How to use and get to THE HUB screen How to use the Calculator How to get to any Assumption Page using the Assumption Page List How to use the Audit Window How to get planease to calculate your Analysis How to view your Analysis Results How to use Sensitivity Analysis How to use Risk Analysis How to view/print Reports Typographic Conventions used in our Tutorials Labels Italics designate labels you see on the screen, like Gen Investment. In addition, the four areas of the Assumption Edit Screen (Assumption Page, etc) are also shown in italics. Keyboard Entries Quotes designate items you should type into planease, like for the $,550,000 Price of Property. Keyboard Keys are shown like / and ` Actions you should take are shown in bold like this. Results of your actions, observations, and discussions of the results of your actions are shown like this Page

2 Starting Point Entering General Information Click on File/New Assumptions on menu bar. The Assumption Set Specification Dialog Box will appear. You always start a NEW Property Analysis in planease this way. You will enter a Unit Sales housing development for this tutorial. Type in the specifications below, pressing / after each completed entry, and click OK. Investment Name Square Feet or Units Comments Unit Sales 0 Leave Blank. The Investment Name Unit Sales will appear in all your reports. You can, of course, choose any name for your own project. The information in the Comments box is saved with the Assumption Set. Whenever you open an Assumption Set, the comments are displayed so that you can easily see what is contained in the Assumption Set. You are now at the Assumption Edit Screen with the Investment Assumption Page showing top left. We call this screen THE HUB. You are now ready to begin entering the numbers for your property into planease. You can also move forward between fields by pressing the tab key T (s - T moves backwards). Entering the Investment Page Type in the specifications below, pressing / after each completed entry. Price of Property Closing Costs Date of Acquisition.05 (Before you actually spend money) Holding Period.5 Inflation Rate 4 Sale Price Method Select No Sale Price Computed from the list Sale Price Parameter Selling Costs As you make these entries they are converted to understandable English. All new entries on this Assumption Page, or any Assumption Page, will convert to understandable English after you press / or move to another entry by clicking (u and d). As you move up and down between the entry fields, note that the white two line help message at the bottom of the Assumption Page and above the Audit Window changes to match the particular assumption you are entering --- the first example of context sensitive help in planease. The Land is NOT put into the Price of Property, but rather is entered as one of the costs in the Unit Sales Dialog (see below), so that it will be included with the other costs of the units sold and written off as an expense when they are sold. Select Analysis/Monthly to switch into Monthly Mode. Entering the Investor s Page Monthly will now replace Yearly in the status bar at the very bottom right of the screen between Unit Sales and RUI. Click on Gen Investor s in Assumption Page List to top right. Type in the specifications below, pressing / after each completed entry. General Vacancy & Credit Loss Present Value Discount Rate Before Debt Present Value Discount Rate Before Tax Present Value Discount Rate After Tax Click on the T button next to General Vacancy & Credit Loss, uncheck Carry Passive Losses Forward, type the following information, and click Paste. Tax Rate First Year Federal Tax Rate Following Years Federal Capital Gain Rate Federal Cost Recovery Recapture Rate Federal The Investor s Assumption Page will appear to the top left. The Investor s Assumption Page has default values entered. Naturally, all these values can be changed when you are doing your own analyses, if need be, to adjust the tax rates for an investor. You can think of the Assumption Page List as a list of the names of pages in a 3-ring notebook. You can move between the pages by clicking on their names in the List. You may also use the W and M keys to move to the next or previous pages in the Assumption Page List. Unit Sales Dialog Click Edit / Unit Sales on the menu bar. While planease is still based on the notebook page concept, the Unit Sales Dialog Box is an interface for entering the development and sale process. All of the development and sale process is entered in this dialog box, which has some extra reporting functions. The numbers still end up in the pages, but the pages are created by the dialog box Page

3 Click on the cell below Unit Sales Cost Item, and enter the following information. Unit Sales Cost Item Land Soft Costs Hard Costs 3 Quantity 0 0 Meas Acres Units Units Cost/Item 00,000 35,000 78,800 Start Mos 8 Draw This is the grid where all the development costs get entered. Here, we are simply entering general numbers at the beginning of the process. However, you can enter thousands of details here if you wish. The Draw amount indicates how much of each item will be paid for by the draw loan. If you want to add even more customized detail, the Meas field can be customized as well. You can see as you typed in Acres into the Meas cell that it became one of the drop down items you could select in the future. Click on the cell below Unit Name, type Model A, and enter the following information. Date Units Unit Price Std Cost Comm When you enter Model A under Unit Name and press /, the grid to the right lights up. The detail of the Model A sales are then entered in the grid to the right. If you mistakenly add an extra item, or wish to remove an item, click Edit/Delete Schedule Item on menu bar. There is a detailed explanation of Standard Cost on the last page of this tutorial. Press the key on your keyboard for more help. 4 Click on the cell below Model A, type Model B, and enter the following information. Date Units Unit Price Std Cost Comm When you enter Model B under Unit Name and press /, the grid to the right changes to show the Model B schedule. The Model A schedule did not disappear just click Model A to get it back. These two grids work together to identify unit/lot types, with detailed date and sale information - each with different schedules as needed. Press the key on your keyboard for more help. Adding Draw Loan Check the box below Construction Draw, enter 7.5 for the interest, 0 in the discharge rate, and select Paid from where interest is. Leave all other defaults as is. If the Draw Discharge Rate is greater than 00, every time a Unit Sale occurs, planease adds together the total Standard Cost of the unit(s) sold (you enter this number), multiplies that amount by this percentage, and pays the resulting amount to reduce the Unit Sales Draw loan balance outstanding. If the Draw Discharge Rate is less than or equal to 00, every time a Unit Sale occurs, planease adds together the total Unit Price(s) less commissions multiplies that amount by this percentage, and pays the resulting amount to reduce the Unit Sales Draw loan balance outstanding. There is a detailed explanation of Standard Cost on the last page of this tutorial. Press the key on your keyboard for more help. Unit Sale Dialog Reports Select Report / Project Cost Schedule. In this dialog box, there are several reports to show the development process. The Project Cost Schedule shows how planease extends the costs over the months entered. The Quantity and Meas information you entered are used here. Two other reports Project Cost Summary, and Project Bill of Materials also display the costs. bottom, Select Report / Unit Sales Summary. How much will the sale of the units produce? The Unit Sales Summary shows $3,875,000. You can also view the Unit Sales in the Unit Sales Schedule Report Page 3

4 3 bottom, Select Report / Unit Sales Draw Loan. This report displays the Draw Loan activity each month. The discharge rate is set at 0% of the Std Cost which is $0,000 for all units. On the Sale Date, planease computes 0% of $0,000 $44,000. Since there are 5 units sold at each Sale Date, planease pays $70,000 to the principal of the loan. 4 bottom, Select Report / Unit Sales Profit. This report provides a one page summary of all the numbers. What do the numbers mean? bottom, click OK button at the bottom, click Basic button at the bottom right, and click on the Vertical button at bottom right of the screen. The Present Value Discount Rate is basically equivalent to a yield rate that a bank returns on a savings account. It is used to take into account the time value of money. The Holding Period in this analysis is.5 years, so the time value is minimal. We entered 0% in the Present Value Discount Rate so that the Net Present Values are essentially equivalent to cash numbers. Page Before Tax Cash Flow Projection Cash Flow Before Debt Column represents the cash flow that will occur before financing. NPV Before 0% = $399,000 Cash Flow Before Tax Column represents the cash flow that will occur after financing. NPV Before 0% = $75,53 The total numbers may occasionally show a slight - dollar difference from the profit report due to rounding of the loan interest payments. The Draw Loan Report rounds the interest payments to the dollar. In this report, the interest payments are rounded to the penny here for the calculations, but shown as whole dollars. For example, in Mar 0 the interest payment is actually $ (shown rounded as 9838). When subtracted from $547,000 the resulting amount is $537,63.49 (shown rounded as 537,63). Page Taxable Income Projection For tax purposes, the interest payments on the loans are expensed as they occur. planease will always expense all the Unit Sales Costs by the end of the holding period. The schedule depends on the numbers entered into Std Cost. Std Cost allows planease to allocate the Costs specified as Unit Sales Costs to the appropriate time period for Income Tax purposes. Unit Sales Costs affect cash flows at the time incurred. However, for tax purposes, they are allocated to the Units Sold, and deducted at the time of the Unit Sale. To accomplish this, the Unit Standard Cost times the number of Units Sold for each Unit Sales Revenue Page is added together to obtain the Total Standard Cost for the Project. Then each Unit Sales Cost in the Cost Grid is allocated to each Unit Sale based on the ratio of the Unit Sale Standard Cost to the Total Project Standard Cost. See the last page of this tutorial for more information regarding Standard Cost. Page 3 After Tax Cash Flow Projection The Cash Flow After Tax Column takes 39.6% (entered on the Gen Investors page) of the Taxable Income and subtracts it from the Before Tax Cash Flow. This decreases the profit. NPV After 0% = $66, Page 4

5 Reports and Graphs Click the Exit Button, select Gen Investment to the top right, then select Report / Income ment from the menu bar. The / Year Monthly Income ment shows all the detail of your construction and sale process. If the project goes longer, just change the holding period to the length of time needed. When printing this report, go into Print/Page Setup, change the horizontal margins to as small as possible, change the body font to Arial Narrow, select Print/Print and print the report in Landscape. This procedure will maximize the amount of data on each page. Click the Graph Button, then select Gross Income Detail from the Data. Choose Column from Graph Listbox. 3 Then select Operating Expense Detail from the Data Listbox. If you have the Graphics Extension, printing the graph of the Gross Income Detail shown as a column graph can be very helpful to explain the investment. Another excellent graph is Operating Expense Detail shown as a column graph. Try other items under Data to see if there are other graphs that can help you when it comes time to present the project. What if - Sensitivity Click the Exit Button, then select Sensitivity to the bottom right. As you perform an analysis, planease measures the worth of the investment in terms of rates of return and net present values. Sensitivity Analysis allows you to investigate how these measures vary with a change in one of the assumptions. Any measure may be chosen for the Sensitivity Analysis, and any assumption may be chosen as well. Sensitivity Analysis provides a one page table and graph which describes the relationship between the assumption value and the resulting measure. Click on Rev-usp Units Sales to top right, click on Price Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type in the specifications below, and click the Run button. Select Column Stacked in Graph Listbox and check 3D to have your graph match the one pictured. Starting at Stopping at In Steps of 90" 0" The Price Multiplier effects all the Unit Sales Prices. If the Price Multiplier is 00% then the Unit Sale Price is assumed to be 00% of what you entered ($00,000 = $00,000). If the Price Multiplier is 90% then the Unit Sale Price is decreased ($00,000 = $80,000). If the Price Multiplier is 0% then the Unit Sale Price is increased ($00,000 = $0,000). If the discharge rate is linked to the sale price (it is not here) the loan repayments are affected as well. This graph shows that if the Unit Sale Prices dip to 9% of the prices you entered, you lose money Page 5

6 3 Click Another button top right, click on Rev-usp Units Sales to top right, click on Cost Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type in the specifications below, and click the Run button. Starting at 00 Stopping at 0" In Steps of The Cost Multiplier affects all the Unit Sales Cost Items. If the Cost Multiplier is 00% then the Unit Sale Cost Item is assumed to be 00% of what you entered ($35,000 = $35,000). If the Cost Multiplier is 0% then the Unit Sale Cost Item is increased ($35,000 = $38,500). The Draw Amounts will modify at the same time, as you have set them to be linked. All the interest payments are changing as well. Assuming the Sale prices stay constant, if the costs increase to 08% you lose money. What if - Risk Click on Exit to top right. Click on the Risk button to the button right. As you perform an analysis, planease measures the worth of the investment in terms of rates of return and net present values. Risk Analysis allows you to investigate how these measures vary with a change in one or more of the assumptions. Any measure may be chosen for the Risk Analysis, and any group of assumptions may be chosen as well. Risk Analysis provides a one page table and graph which describes the relationship between the risky assumption values and the variability (or risk) of the resulting measure. Click on Rev-usp Unit Sales to top right, click on Price Multiplier to top left, click on Cost Multiplier to top left, then click on Net Present Value Before Tax to bottom left. Type 000 in the number of trials, modify the Risk Assumptions as below, then Click Run. Select Column Stacked from Graph Listbox and Probability Distribution from Data Listbox to have your graph match the one pictured. Risk Assumptions Lowest Likely Highest Unit Sales Prices Multiplier Unit Sales Cost Multiplier You can vary many assumptions at the same time using planease risk analysis. Clicking the Unit Sales Prices Multiplier causes planease to suggest a range for the cost number (See grid at top of screen). You can continue choosing assumptions to be included in the risk analysis run. planease Risk Analysis (Monte Carlo Simulation) will run trials, randomly selecting from the assumptions and range you have chosen for each trial. planease will completely compute all cash flows and NPV s for each trial run. You tell planease how many trials to run-more trials are more accurate but also take more time. In this example, we are using 000 trials. When you use risk analysis, you need to make sure that you enter enough trials to get a good sampling of the possibilities. Full explanations are available in the manual and For each cost variation, planease changes the draw loan automatically. For each assumption change shown, planease has changed the construction draw associated with the cost, then planease recomputes the NPV a thousand times. All in a few seconds!!! The results tell us that there are combinations of the Unit Sales Prices Multiplier and the Unit Sales Cost Multiplier that lose money, and combinations that make money. The thousand trials showed an Average NPV of $9,864. Since the numbers are chosen randomly, your run of 000 trials will produce slightly different results from these shown here more trials equal less variation. Are there other assumptions that could be included in the risk analysis? Page 6

7 Standard Cost The Standard Cost (Std Cost) is entered for the sale of each unit in the in the Unit Sales Dialog. The Standard Cost is entered by you, and serves two functions.. Standard Cost used in method to pay off the Draw Loan If the Draw Discharge Rate is greater than 00, every time a Unit Sale occurs, planease adds together the total Standard Cost of the unit(s) sold, multiplies that amount by this percentage, and pays the resulting amount to reduce the Unit Sales Draw loan balance outstanding. If any balance remains outstanding at the end of the holding period, planease pays it off, showing the corresponding negative cash flow at the end of the Holding Period. In this sample, the Standard Cost entered was $0,000 for each unit. The discharge rate entered was 0, so each time a unit is sold, $44,000 is paid to the principal of the Draw Loan. There are 5 Units sold at a time in this sample, so $70,000 is discharged on each of the 4 sale dates selected in this sample. If you changed the discharge rate to 35, then each time a unit is sold $6,000 is paid to the principal of the Draw Loan. There are 5 Units sold at a time, so $80,000 is discharged on each of the 4 sale dates selected in this sample. For this purpose the Standard Cost you enter should be based on the terms of the Draw Loan you have discussed with the bank.. Standard Cost used in method to expense the Unit Sales Cost Items Basic Analysis - Page Taxable Income Projection For tax purposes, the interest payments on the loans are expensed as they occur. planease will always expense all the Unit Sales Costs by the end of the holding period. The schedule depends on the numbers entered into Std Cost. Std Cost allows planease to allocate the Costs specified as Unit Sales Costs to the appropriate time period for Income Tax purposes. Unit Sales Costs affect cash flows at the time incurred. However, for tax purposes, they are allocated to the Units Sold, and deducted at the time of the Unit Sale. To accomplish this, the Unit Standard Cost times the number of Units Sold for each Unit Sales Revenue Page is added together to obtain the Total Standard Cost for the Project. Then each Unit Sales Cost in the Cost Grid is allocated to each Unit Sale based on the ratio of the Unit Sale Standard Cost to the Total Project Standard Cost. When you build and offer units for sale, the IRS taxes you as a "dealer" in those units. This means that all your costs for the units to be sold are accumulated in Inventory, and may only be deducted for tax purposes when the unit(s) are sold, and the inventory can be credited for the matching "Cost of Goods Sold". planease handles the allocation of the costs in Inventory to Cost of Goods Sold through the use of the Standard Cost you enter for the units sold. In this sample, the Unit Sales Cost Items add up to $3,460,000, and these costs need to be expensed. The Standard Cost entered was $0,000 for each unit, and there are 0 units. planease adds up all the Standard Costs ($,400,000), then for each unit sold takes the Standard Cost for that unit, and divides it by the total ($0,000 / $,400,000). This fraction is /0, so for each unit sale planease expenses /0 of the Unit Sales Cost Items - $3,460,000 which equals $73,000. This sample sells units in groups of 5, so planease will expense 5/0 of the Unit Sales Cost Items - $3,460,000 each time which equals the $865,000 shown on Basic Analysis - Page Taxable Income Projection. No matter what standard costs you enter, planease will always expense all of the Unit Sales Cost Items, no more - no less. If you are using the Standard Cost for the Draw Loan Discharge Method, those numbers will be more than sufficient to create the correct schedule for expensing the Unit Sales Cost Items. If you have lots of different types of Units, and your holding period is long enough that you want to concentrate on expensing as much of your costs early in the project as you can, then schedule the units that cost the most, to sell first.