See how return expectations and financing affect the purchase.
Compare what the operating earnings support at your target return with the purchase amount supported by your financing and required after-tax cash flow.
Formula reference
| Metric | Formula | What it means |
|---|---|---|
| Equivalent Capital At Comparison Yield | Annual operating earnings / active comparison yield | Shows the capital associated with the operating earnings at the return rate you entered. |
| NIAT-Preserving Purchase Benchmark | Entered buyer cash + loan principal supported while preserving the required monthly after-estimated-tax cash flow | Uses your financing and cash-flow requirement to show a purchase benchmark. |
Calculation
Assume annual operating earnings of $120,000 and a 12% comparison yield. Equivalent Capital At Comparison Yield is $120,000 / 0.12 = $1,000,000.
For the financing benchmark, use a $200,000 buyer cash contribution, 6% annual interest, 10-year amortization, a 25% estimated tax rate, and required monthly Net Income After Tax (NIAT) of $4,000. These fictional assumptions produce a NIAT-Preserving Purchase Benchmark of about $620,342.78.
The two results answer different questions. Neither is a maximum offer, an appraisal, or financing approval.
Two terms in plain language
Comparison yield is the annual return rate the buyer chooses for comparing this opportunity with another use of capital. After-estimated-tax cash flow is what remains after operating expenses, debt payments, and the modeled tax estimate.