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  #1  
Old 10-16-2011, 12:45 PM
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Default Sinking fund brain f*t

Say 75% loan, 8% rate, 15% equity yield, 15 year holding period, must the sinking fund rate be at the equity yield rate of 15%?
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Old 10-16-2011, 07:44 PM
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Are you doing a band of investment?
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  #3  
Old 10-17-2011, 07:29 AM
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Yep, but not me. An example presented to me that I disagreed with.
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Old 10-17-2011, 08:37 AM
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Originally Posted by John Marshall View Post
Say 75% loan, 8% rate, 15% equity yield, 15 year holding period, must the sinking fund rate be at the equity yield rate of 15%?
If building a cap rate, you would use the sinking fund factor at the equity yield rate for the holding period.
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Old 10-17-2011, 04:12 PM
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Thank you, won a glass of Cabernet over that. Hope no one else chimes in with any opposite comment.
  #6  
Old 10-17-2011, 04:35 PM
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Thank you, won a glass of Cabernet over that. Hope no one else chimes in with any opposite comment.
Can't be another answer--adjustment reflects the return on the increased equity over the holding period. Can't imagine anyone projecting two separate equity yields--one for the initial investment and one for the accruing equity.

Bottoms up!
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Old 10-19-2011, 03:38 PM
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Can't imagine anyone projecting two separate equity yields--one for the initial investment and one for the accruing equity.
The Financial Manager Rate of Return analysis utilizes two different return rates, one for the investment rate and another for the re-investment (safe) rate.
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Old 10-19-2011, 05:42 PM
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The Financial Manager Rate of Return analysis utilizes two different return rates, one for the investment rate and another for the re-investment (safe) rate.
Safe rate typically would be applied to negative cash flows under FMRR.
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Old 10-19-2011, 05:47 PM
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Sorry, incorrect. FMRR is based on the presumption of re-investing ALL cashflows (positive or negative) at a safe rate.
  #10  
Old 10-20-2011, 09:11 AM
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Sorry, incorrect. FMRR is based on the presumption of re-investing ALL cashflows (positive or negative) at a safe rate.
I guess I'm not alone in being incorrrect:

Here’s how it works. All negative cash flows are discounted back over the course of the holding period at the safe rate until they are fully covered by the positive cash flows, and then all the positive cash flows are compounded foreward over the course of the holding period at the reinvestment rate. The result is the financial management rate of return; the rate of return an investor might expect to receive on real estate projects of that length of term and reinvestment risk.
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