Formula Sheet

Question 1

Capitalized Value:

Answer 1

Annual Income / Cap Rate

Flow of income can be converted to PV amount

Business generates $1M of income and uses a 20% cap rate, value is $5M

Question 2

Cap utilization / preservation

Answer 2

Add 1st year back in

1. Earn 120k and SS will provide 20k. Return = 7%

(120-20) / .07 = 1.428M + 100K

2. Wants income to be 36k. Return = 7% and Inflation 4%. Use cap retention to calc:

(.07-.03)

36,000 / .03 = 1.2 M + 36k

1,236,000

Question 3

Calculation of Deductible Loss:

Answer 3

1. Lesser of base or FMV
2. Subtract insurance coverage
3. Subtract $100 floor
4. Subtract 10% of AGI

Question 4

Tax deduction vs tax credit:

Answer 4

1. Deduction * Tax bracket = TEY
2. Tax Credit / Tax bracket = TEY