HP 12c Owners Manual

							 Section 12: Real Estate and Lending 131 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 131 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
KEYSTROKES DISPLAY KEYSTROKES DISPLAY 
:1 10-  45   1- 44-    30 
- 11-    30:5 45-  45   5 
$ 12-    13- 46-    30 
:3 13-  45   3:8 47-  45   8 
gC 14-  43  12+ 48-    40 
:2 15-  45   2- 49-    30 
gA 16-  43  11Þ 50-    16 
P 17-    14P 51-    14 
d 18-    33:0 52-  45   0 
d 19-       33gA 53-  43  11 
0 20-     0:1 54-  45   1 
n 21-    11:6 55-  45   6 
:0 22-  45   0+ 56-    40 
1 23-     1Þ 57-    16 
2 24-     2$ 58-    13 
§ 25-    20¼ 59-    12 
f! 26-  42  11:gC 60-45  43   12 
d 27-    33t 61-    31 
d 28-    33:9 62-  45   9 
d 29-    33gC 63-  43  12 
:$ 30-  45  13M 64-    15 
+ 31-    40fs  
Þ 32-    16  
  
						

							132  Section 12: Real Estate and Lending 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 132 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
REGISTERS 
n: Period  i: Apprec.  PV: Price  PMT: Used 
FV: Used 
R0: Period  R1: Dwn Pmt  R2: Life 
R3: i(Mtg) R4: Taxes/Mo R5: Improve. R6: Closing C. 
R7: % Comm.  R8: Rent  R9: Savings i  R.0: Bracket 
R.1: Unused.    
 
1.  Key in the program. 
2.  Key in the estimated down payment then press ?1. 
3.  Key in the life of the mortgage then press ?2. 
4.  Key in the annual mortgage interest rate then press ?3. 
5.  Key in the estimated monthly taxes then press ?4. 
6. Key in the total amount estimated for monthly repairs, improvements, 
incremental insurance, utility costs, and other expenses, then press ?5. 
7.  Key in the closing costs then press ?6. 
8.  Key in the selling cost as a percentage of the selling price. This should 
include sales commission, escrow fees, etc. then press ?7. 
9.  Key in the monthly rent for the alternative housing then press ?8. 
10. Key in the savings or alternative investment annual interest rate as a 
percentage then press ?9. 
11. Key in the combined State and Federal marginal tax rate
*  as a percentage 
then press ?.0. 
12. Press fCLEARG then key in the number of years involved in the 
investment; press n. 
13. Key in the estimated rate of yearly appreciation as a percentage then press 
¼. 
14. Key in the price of the house under consideration then press $. 
15. Press t to compute the net proceeds from the sale of the house. (A 
negative value indicates money lost.) 
                                                 
* The user should key in the total marginal income tax — Federal plus State — to obtain 
calculations which reflect the tax advantages of home ownership. Because of the complexities 
of tax laws and different financial and tax considerations for each individual, this program 
should only serve as a guide in considering an investment of this type. For more specific, 
detailed information, consult a tax accountant or qualified tax advisor.    
						

							 Section 12: Real Estate and Lending 133 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 133 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
16. Press t to compute the yield on your investment in the house.* 
17. Press t to compute the value of a savings account or other investment. 
18. Compare the value of the hypothetical savings account to the net proceeds of 
the sale of the house. Examine the sign and magnitude of the yield to arrive 
at your decision. 
19. To change data and repeat the calculations, store the changed values in the 
appropriate registers and go to step 12. 
Example:
 You are being transferred for 4 years to a distant city and are faced 
with the decision of whether to rent or to buy a house. A quick survey of the 
housing market indicates that you can purchase an acceptable house for $70,000 
with a $7,000 down payment on a 30 year mortgage at 12% interest. The closing 
costs would be about $1200. Selling costs include a 6% commission for resale 
and miscellaneous other fees that amount to another 2% of the sale price. Housing 
in the area is appreciating 10% per year. Property taxes would be about $110 
per month, and you estimate that maintenance would cost an additional $65 per 
month. 
An alternative would be to rent a similar dwelling at $400 per month and to invest 
the difference between the purchase cost and rent at 6
1/4% interest. Your personal 
income tax rate (marginal) is 25% Federal and 5% State. Which alternative is 
more financially attractive?
 
Keystrokes Display  
fCLEARH 
0.00  
7000?1 
7,000.00 Down payment. 
30?2 
30.00 Life of mortgage. 
12?3 
12.00 Interest rate. 
110?4 
110.00 Property taxes. 
65?5 
65.00 Monthly expenses. 
1200?6 
1,200.00 Closing costs. 
8?7 
8.00 Resale costs (as a percentage). 
400?8 
400.00 Rent. 
6.25?9 
6.25 Savings interest rate. 
30?.0 
30.00 Tax bracket. 
fCLEARG 
30.00 Clear financial registers. 
                                                 
* If the calculator displays a negative result or Error 5 when solving for yield then your 
investment has resulted in a loss. The amount of interest earned on the alternative investment 
is not taken into account in this calculation.  
						

							134  Section 12: Real Estate and Lending 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 134 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
Keystrokes Display  
4n 
4.00 Years in investment. 
10¼ 
10.00 Yearly appreciation rate. 
70000$ 
70,000.00 House price. 
t 
32,391.87 NCPR (calculated). 
t 
19.56 Yield. 
t 
21,533.79 Balance in savings. 
By purchasing a house, you would gain $10,858.08 (32,391.87 – 21,533.79) 
over an alternate investment at 6.25% interest. 
Deferred Annuities 
Sometimes transactions are established where payments do not begin for a 
specified number of periods; the payments are deferred. The technique for 
calculating NPV may be applied assuming zero for the first cash flow. Refer to 
pages 58 through 62. 
Example 1:
 You have just inherited $20,000 and wish to put some of it aside for 
your daughter’s college education. You estimate that when she is of college age, 9 
years from now, she will need $7,000 at the beginning of each year for 4 years 
for college tuition and expenses. You wish to establish a fund which earns 6% 
annually. How much do you need to deposit in the fund today to meet your 
daughter’s educational expenses?
 
Keystrokes Display  
fCLEARH 
0.00 Initialize. 
0gJ 
0.00 First cash flow. 
0gK 
8ga 
0.00 
8.00 Second through ninth cash flows. 
7000gK 
4ga 
7,000.00 
4.00 Tenth through thirteenth cash flows. 
6¼ 
6.00 Interest. 
fl 
15,218.35 NPV. 
  
						

							 Section 12: Real Estate and Lending 135 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 135 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
Leases often call for periodic contractual adjustments of rental payments. For 
example, a 2-year lease calls for monthly payments (at the beginning of the month) 
of $500 per month for the first 6 months, $600 per month for the next 12 months, 
and $750 per month for the last 6 months. This situation illustrates what is called a 
“step-up” lease. A “step-down” lease is similar, except that rental payments are 
decreased periodically according to the lease contract. Lease payments are made 
at the beginning of the period. 
In the example cited, the rental payment stream for months 7 through 24 are 
“deferred annuities,” as they start at some time in the future. The cash flow 
diagram from the investor’s viewpoint looks like this: 
 
To find today’s present value of the cash flows assuming a desired yield, the NPV 
technique may be used. (Refer to pages 58 thru 62.) 
Example 2:
 A 2-year lease calls for monthly payments (at the beginning of the 
month) of $500 per month for the first 6 months, $600 per month for the next 12 
months, and $750 per month for the last 6 months. If you wish to earn 13.5% 
annually on these cash flows, how much should you invest (what is the present 
value of the lease)?
 
Keystrokes 
Display  
fCLEARH  
0.00 Initialize. 
500gJ 
500.00 First cash flow. 
gK 
5ga 
500.00 
5.00 Second thru sixth cash flows. 
600gK 
12ga 
600.00 
12.00 Next twelve cash flows. 
750gK 
6ga 
750.00 
6.00 Last six cash flows. 
13.5gC 
1.13 Monthly interest rate. 
fl 
12,831.75 Amount to invest to achieve a 
13.5% yield.  
						

							 
136 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 136 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
  Section 13 
Investment Analysis 
Pa r t i al -Ye a r De prec ia t io n 
For both income tax purposes and financial analyses, it is valuable to calculate 
depreciation based on a calendar or fiscal accounting year. When the acquisition 
date of an asset does not coincide with the start of the year — which is the rule 
rather than the exception — the amounts of depreciation in the first and last years 
are computed as fractions of a full year’s depreciation. 
Straight-Line Depreciation 
The following hp 12c program calculates the straight-line depreciation for the year 
desired with the acquisition date occurring at any time during the year. 
KEYSTROKES DISPLAY KEYSTROKES DISPLAY 
fs  - 21-    30 
fCLEARÎ 00- n 22-    11 
1 01-     1:0 23-  45   0 
2 02-     2gm 24-  43  35 
z 03-    10gi35 25-43, 33   35 
?1 04-  44   1:2 26-  45   2 
~ 05-    34gu 27-  43  31 
?2 06-  44   2:0 28-  45   0 
1 07-     1fV 29-  42  23 
- 08-    30t 30-    31 
?0 09-  44   01 31-     1 
1 10-     1?=0 32-44  40   0 
fV 11-  42  23?=2 33-44  40   2 
:1 12-  45   1gi26 34-43, 33   26 
§ 13-    20:2 35-  45   2  
						

							 Section 13: Investment Analysis 137 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 137 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
KEYSTROKES DISPLAY KEYSTROKES DISPLAY 
?3 14-  44   3gu 36-  43  31 
:$ 15-  45  13:$ 37-  45  13 
~ 16-    34:M 38-  45  15 
- 17-    30- 39-    30 
$ 18-    13:3 40-  45   3 
:n 19-  45  11gi30 41-43, 33   30 
:1 20-  45   1fs  
 
REGISTERS 
n: Life  i: Unused  PV: Dep. Value  PMT: Unused 
FV: Salvage 
R0: Used  R1: #Mos./12  R2: Counter 
R3: 1st Yr. Dep.  R4–R.4: Unused   
 
1.  Key in the program. 
2. Press fCLEARG. 
3.  Key in the book value then press $. 
4.  Key in the salvage value then press M. 
5.  Key in the life in years (an integer) then press n. 
6.  Key in the year desired then press \. 
7.  Key in the number of months in the first year and press t.
* The display 
will show the amount of depreciation for the desired year. If desired, press 
~ to see the remaining depreciable value then press 
:$:3=~-:M- to find the total depreciation from the 
first year through the current year. 
8. Press t for the amount of depreciation and remaining depreciable value 
for the next year. Repeat this step for the following years. 
9.  For a new case, press gi00 and return to step 2. 
                                                 
* The display will pause showing the year number before showing the amount of depreciation 
for that year.  
						

							138  Section 13: Investment Analysis 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 138 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
Note: If the number of months in the first calendar year is less than 12, the 
amount of depreciation in the 1st year will be less than a full year’s 
depreciation. The actual number of years that depreciation will occur is 
equal to the life +1. For example, a drill has a life of 3 years and is 
purchased 3 months before the year end. The following time diagram shows 
that depreciation will occur over 4 calendar years. 
 
Example 1: 
A property has just been purchased for $150,000. The purchase 
price is allocated between $25,000 for land and $125,000 for improvements 
(building). The remaining useful life of the building is agreed to be 25 years. There 
is no salvage value forecasted at the end of the useful life of the building. Thus, the 
depreciable value and book value is $125,000. 
The building was acquired 4 months before the end of the year. Using straight-line 
depreciation, find the amount of depreciation and remaining depreciable value for 
the 1st, 2nd, 25th, and 26th years. What is the total depreciation after 3 years?
 
Keystrokes Display  
fCLEARG  
 Salvage value = 0 so FV = 0. 
125000$ 
125,000.00 Book value. 
25n 
25.00 Life. 
1\ 
1.00 Year desired. 
4t 
 
~ 
1.00 
1,666.67 
123,333.33 First year: 
depreciation, 
remaining depreciable value. 
t 
 
~ 
2.00 
5,000.00 
118,333.33 Second year: 
depreciation, 
remaining depreciable value. 
t 
3.00 
5,000.00 Third year: 
depreciation. 
~:$:3 
+~- 
gi00 
 
 
11,666.67  
 
Total depreciation through third 
year. 
fCLEARG 
11,666.67  
125000$ 
125,000.00 Book value.  
						

							 Section 13: Investment Analysis 139 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 139 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
Keystrokes Display  
25n 
25.00 Life. 
25\ 
25.00 Year desired. 
4t 
 
~ 
25.00 
5,000.00 
3,333.33 Twenty-fifth year: 
depreciation, 
remaining depreciable value. 
t 
 
~ 
26.00 
3,333.33 
0.00 Twenty-sixth year: 
depreciation, 
remaining depreciable value. 
Example 2:
 A new car was purchased for $6,730 with 4
1/2 months remaining 
in the year. If the expected life of the car is 5 years, what is the amount of 
depreciation in the first year?
 
Keystrokes Display  
gi00 
fCLEARG   
6730$ 
6,730.00 Book value. 
5n 
5.00 Life. 
1\ 
1.00  
4.5t 
1.00 
504.75 First year: 
depreciation. 
Declining-Balance Depreciation 
The following hp 12c program calculates the declining-balance depreciation for 
the year desired with the acquisition date occurring at any time during the year. 
KEYSTROKES DISPLAY KEYSTROKES DISPLAY 
fs  :0 19-  45   0 
fCLEARÎ 00- gm 20-  43  35 
1 01-     1gi31 21-43, 33   31 
2 02-     2:2 22-  45   2 
z 03-    10gu 23-  43  31 
?1 04-  44   1:0 24-  45   0 
~ 05-    34f# 25-  42  25 
?2 06-  44   2t 26-    31  
						

							140  Section 13: Investment Analysis 
 
File name: hp 12c_users guide_English_HDPMBF12E44  Page: 140 of 209   
Printered Date: 2005/7/29    Dimension: 14.8 cm x 21 cm 
 
KEYSTROKES DISPLAY KEYSTROKES DISPLAY 
1 07-     11 27-     1 
- 08-    30?+0 28-44  40   0 
?0 09-  44   0?+2 29-44  40   2 
1 10-     1gi22 30-43, 33   22 
f# 11-  42  25:2 31-  45   2 
:1 12-  45   1gu 32-  43  31 
§ 13-    20:$ 33-  45  13 
?3 14-  44   3:M 34-  45  15 
:$ 15-  45  13- 35-    30 
~ 16-    34:3 36-  45   3 
- 17-    30gi26 37-43, 33   26 
$ 18-    13fs  
 
REGISTERS 
n: Life  i: Factor  PV: Dep. Value  PMT: Unused 
FV: Salvage 
R0: Used  R1: #Mos./12  R2: Counter 
R3:1st Yr. Dep.  R4–R.4: Unused   
 
1.  Key in the program. 
2. Press fCLEARG. 
3.  Key in the book value then press $. 
4.  Key in the salvage value then press M. 
5.  Key in the declining-balance factor as a percentage then press ¼. 
6.  Key in the life in years (an integer) then press n. 
7.  Key in the year desired then press \. 
8.  Key in the number of months in first year
* and press t.†  The display will 
show the amount of depreciation for the desired year. Press ~ to see the 
                                                 
* Refer to straight-line depreciation instruction note, page 137.   
† The display will pause showing the year number before showing the amount of depreciation 
for that year.