1. Using Spreadsheets in Eng Econ (Separating Principle and Interest) ©2005 Dr. Bradley C. Paul

2. The tax deduction and equity problem  The handy magic numbers are designed to sweep cash in standard positions into the pot.  We can always get questions they really weren’t designed to answer  This case - how much is interest and how much is building equity  Enter another answer - the spreadsheet

3. One of Our Prepared Resources is a Mortgage Calculator Yellow input fields call for Information on the proposed loan (the web site has a version of this Lecture that shows you how to Build your own spreadsheet)

4. Input the Data on the Local Bank Loan from Union Shafters

5. Outputs Summary Data for Loan (assumed he kept it for 15 years) We’re not looking at long Term home ownership – We just want to find the Least expensive way for Herby and Hanna to have A roof over their heads while Herby goes to school (Classic All Cost Alternatives Problem)

6. Here Below is Info We Wanted Note that at first most of your payments Go to interest By keeping track Of the interest We could calculate How much we Could deduct on Schedule A and What it would save Us bottom line on Our taxes

7. Tax Assumption  Lets assume Herby can deduct his interest, but that he is only in the 15% tax bracket  The money Herby saves on his taxes may be a positive flow into his pocket as a refund check  Year #1 $1983 * 0.15 = $297.48  Year #2 $1907.9 * 0.15 = $286.19  Year #3 $1826.33 *0.15 = $273.95  Year #4 $1738.01 * 0.15 = $260.70  Year #5 $1642.35 * 0.15 = $246.35

8. Cash Flow for Buying with Local Loan 0 1 - 12 13 - 24 25 - 36 37 - 48 49 - 60 61 - 69 73 $3,535 $240.88 per month $6,358.68 $297.48$286.19$273.95$260.70 $246.35 $174.63

9. Can do the Same Thing for the Internet Loan

10. Cash Flow for Internet Loan 0 1 - 12 13 - 24 25 - 36 37 - 48 49 - 60 61 - 69 73 $4,060 $157.49 per month $238.52$235.64$232.55$229.27$225.79$166.92 $1630.95