This calculator provides an easy-to-understand investment source comparison between depleting cash reserves and leveraging borrowed funds for investing. |
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The math for the pay cash strategy comparison is very straightforward and in fact, the documentation worksheet "self documents" the calculation in the column headers. Column 1: Year (self explanatory). Column 2: Reserve Value, the collateralized account balance at beginning of year. Column 3: PRS Loan Value, the collateralization loan balance at the beginning of the year. Column 4: Investment Value BOY, the investment opportunity account balance at the beginning of the year. Column 5: Total Earnings, Col4 * Investment assumed rate of return. Column 6: Loan Interest Paid, Col3 * Loan interest rate. Column 7: Taxable Earnings, Col5 - Col6. Column 8: Taxes, Col 7 * Assumed tax bracket. Column 9: Net Investment Earnings, Col7 - Col8 Column 10: Reserve Growth, Col2 * Reserve assumed growth rate. Column 11: PRS Loan Draw, Col10 (Base assumption is that all reserve growth will be leveraged for outside investment opportunity.) Column 12: Investment Value EOY, Col4 + Col9 + Col10 |