Private equity inve...
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Private equity investment

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New Member Customer
Joined: 2 years ago
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I originally listed this in the Trouble shooting section, but later got to thinking that maybe it is a question better posted in the How-to Forum.

I am new to the PRC this year and have finally entered all the requested financial information and now starting to look at reports and What if scenarios. All the reports are understandable with one exception. I have an investment in a private equity company that I expect to liquidate in 5 years. If I try to list that investment in the Initial Balances tab, it doesn't fit neatly into any of the categories available. And if I were to list it as a Regular Investment account, I see no opportunity in the other tabs to specify a date of liquidation. If I list it under Windfalls in the Income tab, I can specify the expected revenue as a result of the sale, but then the asset value is not included in the initial 2021 net worth. And the 3rd option I see is to list it under Property in Expenses with the acquisition costs, date of purchase, and ROR with the expected sale date of 2026. That is where I have it initially listed, but the sale in 2026 results in a huge dip in the Expense line (in Analysis Monte Carlo and Tabular reports) for that year when in fact it is an income windfall and should result in an uptick in expenses due to capital gains tax. Any suggestions? Am I missing something? I have looked through the Users Manual and am not finding this particular scenario addressed. TIA. Dan

Member Admin
Joined: 3 years ago
Posts: 520

Dan, I think you selected a very good approach for modeling your private equity company investment. I set up my own test case for this and PRC does seem to be modeling it correctly. As you pointed out, though, it generates a large negative income in the year the asset is liquidated. That's the nature of the Property Expenses page. The PRC design considers this to be an expense page but the assets being modeled here do occasionally generate income as well (as in your case). When that case occurs, PRC treats this as a negative expense (because this page generates expenses, not income). On the PRC page (invisible to the user) that integrates income, expenses and everything else, this negative expense gets added to all other expenses and is then subtracted from income to determine the annual cash flow. This can result in a large positive cash flow in the year this asset is sold. So, it may be disconcerting to see this element of income reflected a large dip in expense, but the math works and it has proven to be an effective way to model assets that generate both income and expenses.

Independent of the explanation above, long-term capital gains are calculated when this asset is sold and then included in the income tax calculations for that year; however, the Property Expenses page doesn't include any taxes associated with the sale of assets as an expense. Taxes are quite complex and are dependent on many things that go way beyond the things being modeled on this page, so they are handled elsewhere in the model. But, the Summary Table at the bottom of the page does show the reportable capital gains generated on the page and you can find that to be included in the default view of the Taxes tabular projection page.