EQUIVALENT CASH PRICE
Contract Sales Price – Sales price as shown in the contract
Contract Interest Rate
Interest rate applicable to any vendor finance agreement
Outside / Ruling Interest Rate
Market interest rate t
...
EQUIVALENT CASH PRICE
Contract Sales Price – Sales price as shown in the contract
Contract Interest Rate
Interest rate applicable to any vendor finance agreement
Outside / Ruling Interest Rate
Market interest rate that would otherwise be applicable
NOTE: The contract interest rate could be below or above the market interest
rate level. Where this occurs the sales price can prove to be either overstated or
understated as the case may be.
Question 1
Calculate the EQUIVALENT CASH PRICE for the following transaction.
The contract sales price is $2,500,000. The deposit, released on exchange of contracts, is
10% of the contract sales price. The balance is repayable on the following terms:
Lump sum payment at end Year 2 - $ 1,000,000 with the remaining balance due on
settlement at end year 3
The outside ruling interest rate is 8 % per annum (nominal)
EQUIVALENT CASH PRICE
Question 2
Calculate the EQUIVALENT CASH PRICE for the following transaction.
The contract sales price is $8,500,000. The deposit, released on exchange of contracts, is
20% of the contract sales price. The balance is repayable on the following terms:
Interest only for the first SIX years at 5% per annum (nominal), paid annually in arrears;
THEN by a mortgage repayable by level monthly payments in advance of principal and
interest over a further 12 years at 6% per annum (nominal).
The outside ruling interest rate is 8.5% per annum (nominal)
EQUIVALENT CASH PRICE
Question 3
You have been requested to value a development site which has Development Approval
for the construction of 26 townhouses. Determine your valuation using an analysis of the
following two sales which were of similar development sites in the area.
SALE 1
The contract sales price is $3,200,000 for a D/A approved site for 30 townhouses. The
deposit, released on exchange of contracts, is 10% of the contract sales price. The
balance is repayable on the following terms:
Interest only for the first two years at 8 % per annum, paid quarterly in arrears, THEN
a single lump sum payment of $1,000,000 at the end of year two and with the remaining
balance of the contract price payable six months later.
The outside ruling interest rate is 12 % per annum.
EQUIVALENT CASH PRICE
SALE 2
The contract sales price is $ 4,500,000 for a D/A approved site for 38 townhouses. The
deposit, released on exchange of contracts, is 30% of the contract sales price. The
balance is repayable on the following terms:
Interest only mortgage for the first three years at 6 % per annum, paid annually in
advance; THEN by a principal and interest mortgage for a further three years also at 6%
per annum and with payments being made monthly in arrears.
The outside ruling interest rate is 12 % per annum.
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