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Valuation Results

 Stated Price
You already have a price and you want to calculate the return.

Initial Purchase Price

Discount Rate

You know the return (Discouint Rate) and you want to know the price or value.

Breakeven comparison fields

You already have a set of values and you want to compare two valuations on a loan by loan basis

Pre-Debt Analysis

You want to know the market value.

Post-Debt Analysis

You want to know the return on your equity for a specific investment
Purchase Price Analysis - Stated Values

The input record has a place that you can put the price you want to pay. This is the same as the current book value if you are valuing your current servicing portfoilio. LLAMA will use this price to calculate the IRR and MIRR. The discount rate is still used to calculate the breakeven price.

 These values can be defined by the user. They are the numbers used to determine the valuation results. The two basic scenarios for llpurp are:

1. You leave the stated price blank and the model calcualtes the maximum price (breakeven) you would pay based on the discount rate you entered.

2. You enter a price you are willing to pay and the model calculates the return (IRR) you will earn based in the price and the discount rate you entered.

llpurr2 Purchase price as a percent of loan balance

You can enter a stated purchase price to calculate the present value and internal rate of return. The model will still calculate the maximum price to pay. However, the cash flows will be based on the stated purchase price.
Initial Pirce

The initial price you [pay for a portfolio is composed of two components: 1. The actual price paid to the seller; 2. the conversion cost paid by your company in transfer fees, processing, computer charges etc. It is important not to confuse these two items. Conversion cost
The conversion cost can be amortized in the same way as the purchase price. It can be completly written off in the first month which would give you the full effect of the tax deduction.

Several situations areise:

1. The tax rate is 0 - If the tax rate in the first month is zero and you write the entire conversion cost off, then the net cash flow effect is zero.

2. The entire conversion cost is written off the before the first month. This is the assumptiuon the KAL_II model makes. Unfortunately, you can not see the effects of the converiosn cost in the KAL_II income statement. In fact, the amortization of the converison cost is in the same line as the amortization of the purchase price.

Purchase Price

The purchase price will be the price you entered or the breakeven price that the model caclulates. Net Initial Cost

You can think of the net initial cost in two ways:
1. The total of the purchase price and the conversion cost. This is the correct intial cost.

2. The total of the purchase price and the conversion cost less any tax savings from write offs in the first period. This is useful for planning and decision making only.

Discount Rate Analysis

In this scenario, you enter a discount rate that is used to calculate a price for each segment or loan. When ever you buy servicing this is what you are doing. You enter a discount rate, calculate the (beakeven) price and bid this price.
Breakeven comparison fields
There is room on the input record to put a set of values. These values are only used to compare the LLAMA caluclated values to some other svaluation system you are using. The comparison values could be from a prior valuation using LLAMA.

These values are added to the results record. You can use any databse system to show graphs or changes to the results.

These values come from the client database. They are not created anywhere in the LLAMA system. The values are used for comparison only!

They are:

1. Values from a prior valuation
2. Values from another valuation system
3. Target values

Comparison Fields

lybevp3   Breakeven price
lybevr3   Breakeven percent
lyirr3     IRR rate of return
Pre-Debt Analysis

 The "pre-debt" analysis is the normal analysis that calculates the price of a portfolio. The value and return is either calculated from the input price or from the input discount rate.

Results Output record

Technical definition of the output records. The record layout for the valuation results

   Investment Criteria

 Value, price, result, market value, etc.
The price you are willing to pay.

 PV - Present Value
The present value of the after tax cash flows discounted at the stated discount rate.

NPV - Net present value
The present value less the original investment less the conversion cost. If the net present value is equal to zero then the IRR should equal the discount rate.

B/E - Breakeven Values

The break even price is the highest price you should pay for this segment or loan. The converison cost should not be part of this value. The conversion cost is considered a separate cash outlay at the time the portfolio is purchased. The conversion cost is part of the amortization expense and as such, has no effect on the cash flows other than in the reduction of the income tax. If there is no income tax then the conversion cost would not effect the valuation.

IRR - Internal Rate of return

The IRR is the rate at which the value of the discounted cash flows exactly equals the original investment.

 MIRR - Modified Internal Rate of return
The MIRR is the calculated return if the cash flows are reinvested at some rate other than the IRR.

 The MIRR is equal to: 
( ( Sum [Rein Factor * Cash Flow] )         1    )
( ( ----------------------------- ) Power ------ )  -1
( (    Purchase Price             )       RmTerm ) 

  ReinRate Factor:
    ( 1 - ReinRate * ( 1- Tax Rate) ^ (Rem - Cur Term) )
To find the MIRR we equate the present value of the investment to the original investment. The calculation determines what the IRR would be if there were a single cash payment made at the end of the investment period. By "Reverse" discounting this amount to the original investment, we find the equivalent IRR.

Payback Period

The number of months of cash flow to return the purchase price

 Duration
Sensitivity of the value to the changes in the discount rate.

 Expected Loan Life
The average number of months until loan payoff or full amortization.
Post Debt Analysis
 The "post-debt" analysis calculates the return on the equity portion of the purchase price. If you borrow money to buy a portfolio, then some portion of the purchase price will have a fixed interest rate. This rate is the debt interest rate. This expense is subtracted from the cash flow and the return is caclulated only on the equity portion of the purchase price. The higher the debt to equity ratio, the greater the variation in the post-debt return is likely to be.

Post-Debt Analysis Results record

Investment Criteria

Present Value
Net present value
Internal Rate of Return
Payback
Duration
Expected Life of loan
RE Results record


Record Identification
recid       Record ID RE           TEXT  010  0001 0010 _RE
recnum      Record number          TEXT  007  0011 0017 X7
loanx       Loan number            TEXT  015  0018 0032 X15
recyer      Analysis Year/Mon      TEXT  008  0033 0040 X8
lltime      Processing time        TIME  005  0041 0045 HHMM
lldate      Processing date        DOUB  005  0046 0050 MMDD

Segment or Loan Values
llpurp2a    Average purchase price CURR  011  0051 0061 9(6).00
llpurp2     Stated purch price     CURR  016  0062 0077 9(11).00
llpurr2     Purchase Price pcnt    REAL  009  0078 0086 9.000000
lyirr2      IRR rate of return     REAL  010  0087 0096 999.00000

Investment Criteria
lyprev0     Present value          CURR  011  0097 0107 999999.00
lyprep0     PV as % of bal         REAL  008  0108 0115 9.00000
lynet0      Net present value      CURR  011  0116 0126 999999.00
lynetp0     NPV as % of bal        REAL  008  0127 0134 9.00000
lyreir0     Reinvestment rate      REAL  008  0135 0142 9.00000
lymirr0     Modified IRR           REAL  010  0143 0152 999.00000
lyexpl0     Expected loan life     REAL  006  0153 0158 999.0
lypybk0     Payback period         REAL  006  0159 0164 999.0
lyecnd0     Economic duration      REAL  009  0165 0173 999.000


Breakeven values
lybevp0     Breakeven price $tot   CURR  016  0174 0189 9(11).00
lybevp0a    Breakeven price $avg   CURR  010  0190 0199 9(6).00
lyirr0      IRR rate of return%    REAL  010  0210 0219 999.000


Comparison fields
lybevp3     Breakeven price   $    TEXT  010  0220 0229 X10
lybevr3     Breakeven percent %    TEXT  010  0230 0239 X10
lyirr3      IRR rate of return%    TEXT  010  0240 0249 X10