ROCK CREEK GOLF CLUB

Exhibit A
Purchase Lease
Year Transaction Inflow Outflow Outflow Inflow
0 Disposal of old carts* 8,000.00 8,000.00
0 Tax effect of disposal* 2,720.00 2,720.00
0 Purchase cost 89,600.00 -
1-5 Cart revenue* 55,440.00 55,440.00
1-5 Cart expenses* (per year) 11,088.00 11,088.00
1-5 Lease payments* (per year) - 13,200.00
1 Depreciation tax shield 9,520.00
2 Depreciation tax shield 7,072.00
3 Depreciation tax shield 4,243.00
4 Depreciation tax shield 3,182.00
5 Depreciation tax shield 3,182.00
5 Proceeds from disposal 9,600.00
0 Time zero flow 84,320.00 5,280.00
1-5 NPV of net streams 44,352.00 31,152.00
PV factor (3.993) 177,098.00 124,390.00

Factor
1 NPV 0.926 8,815.52
2 of 0.857 6,060.70
3 Depreciation 0.794 3,368.94
4 Tax 0.735 2,338.77
5 Shield 0.681 2,166.94
5 NPV of disposal proceeds 0.681 6,537.60
Disposal: 40 carts $ 200 each 8,000.00
Tax rate: 34% 2,720.00
Purchase: 40 carts $ 2,240 each 89,600.00
Cart revenue: $ 84,000 55,440.00
Cart expense: $ 420 40 carts 11,088.00
Lease payments:
Year Depreciation Tax shield (34%)
1 28,000.00 9,520.00
2 20,800.00 7,072.00
3 12,480.00 4,243.20
4 9,360.00 3,182.40
5 9,360.00 3,182.40
80,000.00
Purchase price: 89,600.00
Less: Salavge value 9,600.00
NPV of net streams: $ 177,098 3.993 44,352.12
$ 124,390 3.993 31,152.02
ROCK CREEK GOLF CLUB
Question 1

PV factor 5 years, 8% 3.993

Annual installment (89,600 / 3.993) 22,439.27
Term: 5 years
pau:
Annual installment
Loan Amortization Schedule

Principal owned at Annual Reduction of

Year beginning of the year payment Interest at 8% Principal Balance
A=e B C = a x 8% D=b-c E=a-d
1 89,600.00 22,439.27 7,168.00 15,271.27 74,328.73
2 74,328.73 22,439.27 5,946.30 16,492.97 57,835.76
3 57,835.76 22,439.27 4,626.86 17,812.41 40,023.35
4 40,023.35 22,439.27 3,201.87 19,237.40 20,785.95
5 20,785.95 22,439.27 1,662.88 20,776.39 9.55
ROCK CREEK GOLF CLUB
Question 2

Sales price per cart (future value) $ 2,240

Lease payment per cart per year (payment) $ 500
Lease term (n) 5 years

Payment (PV factor of annuity) = Future value

PV factor of annuity $ 500 = $ 2,240
PV factor of annuity = $ 2,240
$ 500
PV factor of annuity = 4.48
Lease term: 5 years

Present value of an Annuity of $ 1

Periods 1% 2% 3% 4% 5% 6% 7% 8%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926
2 1.970 1.942 1.913 1.886 1.859 1.933 1.808 1.783
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993
9% 10%
0.917 0.909
1.759 1.736
2.531 2.487
3.240 3.170
3.890 3.791
ROCK CREEK GOLF CLUB
Question 3 pau:
Earnings before Interest, pau: pau:
Tax, Depreciation and Interest at 8% in question Earnings
Proposal A: Buy the carts at $ 2,240 eah Amortization 1
Investment: $ 89,600 ($ 2,240 x 40 carts)
Scrap value: $ 9,600 ( $ 240 x 40 carts)

Year Inflow Out-of-pocket EBITDA Interest Depreciation EBT Tax

a b c=a-b d e f = c - (d + e) g = f x 34%
0 81,600.00
1 84,000.00 16,800.00 67,200.00 7,168.00 28,000.00 32,032.00 10,890.88
2 84,000.00 16,800.00 67,200.00 5,946.30 20,800.00 40,453.70 13,754.26
3 84,000.00 16,800.00 67,200.00 4,626.86 12,480.00 50,093.14 17,031.67
4 84,000.00 16,800.00 67,200.00 3,201.87 9,360.00 54,638.13 18,576.96
5 93,600.00 16,800.00 76,800.00 1,662.88 9,360.00 65,777.12 22,364.22

Out-of pocket:
Investment (outflow) 89,600.00
Disposal value (inflow) 8,000.00
Out-of pocket Year 0 81,600.00
$ 420 x 40 carts per year = 16,800.00

Proposal B: Lease the carts at $ 500 per cart per year

Expected annual revenue 84,000.00
Annual out-of-pocket operating expense 16,800.00
Annual lease payments ($ 500 x 40 carsts) 20,000.00 36,800.00
Annual pre-tax net inflow 47,200.00
Tax ($ 47,200 x 34%) 16,048.00
Annual after tax inflow 31,152.00
Discounted factor for 8%, 5 years 3.993
Net present value 124,389.94
 pau:
in question Earnings before tax

Present value of $ 1 at 8%: Present value of annuity $ 1 at 8%:

After-tax Discount NPV Period
h=c-g factor 1 0.926 0.926
(81,600.00) 2 0.857 1.783
56,309.12 0.926 52,142.25 3 0.794 2.577
53,445.74 0.857 45,803.00 4 0.735 3.312
50,168.33 0.794 39,833.66 5 0.681 3.993
48,623.04 0.735 35,737.93
54,435.78 0.681 37,070.77
128,987.60
ue of annuity $ 1 at 8%:
ROCK CREEK GOLF CLUB
Question 4 Checking:
Proposal A:
Differential NPV 4,000.00 Expected annual revenue
Differential factor for 8%, 5 years 3.993
Future value (after tax) 1,001.75
Tax rate 34% Annual pre-tax net inflow
Future value (before tax) (1,001.75 / 66%) 1,517.81 Tax ($ 48,718 x 34%)
Divided by number of carts 40 Annual after tax inflow
Incremental decrease in lease payments 37.95 Discounted factor for 8%, 5 years
Net present value

Proposal B:
Expected annual revenue

Annual pre-tax net inflow

Tax ($ 47,200 x 34%)
Annual after tax inflow
Discounted factor for 8%, 5 years
Net present value

Difference
Checking:
Proposal A:
Expected annual revenue 84,000.00
Annual out-of-pocket operating expense 16,800.00
Annual lease payments 18,482.00 35,282.00
Annual pre-tax net inflow 48,718.00
Tax ($ 48,718 x 34%) 16,564.12
Annual after tax inflow 32,153.88
Discounted factor for 8%, 5 years 3.993
Net present value 128,390.44

Proposal B:
Expected annual revenue 84,000.00
Annual out-of-pocket operating expense 16,800.00
Annual lease payments 20,000.00 36,800.00
Annual pre-tax net inflow 47,200.00
Tax ($ 47,200 x 34%) 16,048.00
Annual after tax inflow 31,152.00
Discounted factor for 8%, 5 years 3.993
Net present value 124,389.94

Difference 4,000.51