ShmoopTube

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Finance a la shmoop what is net worth?

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well net worth refers to the value of something like if you have 10 million

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bucks in assets and 2 million in debt your net worth is 8 million 10 months -

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bigger example you're a wealthy real estate mogul different kind of mogul [person skiing down a mountain]

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this kind you have 3 billion dollars worth of buildings so how do we know

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there were 3 bill well we have a bevy of active buyers willing to pony up cash [buyers cuing up to buy a building]

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for the marquee trophy real estate between 5th and central park we also

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know it's worth this much just by using a discounted cash flow analysis anyway

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the buildings show profits of 200 million bucks a year and the going rates [Building with a fore sale sign of 3 billion dollars]

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for these buildings is about 3 billion or 15 times that unleveraged number

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there's a new term unleveraged well unleveraged means that the buildings [a bird swooping into the buildings window]

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carry no debt which is unusual for real estate because with such steady

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recurring predictable revenues and profits on long term leases there are

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generally good candidates for taking on lots of relatively cheap debt you know [A building being compressed by debt]

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in banks generally like lending to real estate projects so the three billion

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gross or total worth of these buildings is the net worth as well because there's [Dollar signs raining from the sky onto the buildings]

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no debt to subtract they're unleveraged but what if the mogul decided he wanted

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to buy 2 billion dollars worth more of buildings and he decided to pledge his [mogul attempting to buy more buildings]

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existing unleveraged 3 billion dollars worth of building as collateral so he

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can take out loans that are bigger right well then he went to Vegas put all 2 [Mogul with a wheelbarrow of cash gambling in vegas]

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billion on 17 black and lost well the good news he just made a lot of new

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friends at that casino the bad news well he's lost a whole 2 billion and he still [Mogul losing 2 billion dollars on the roulette]

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has to pay it all back his net worth just went down to 1 billion because you

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take the 3 billion dollar value of his real estate subtract the 2 billion in

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loans he still has to pay off now and yeah we know he never bad on [White roulette ball landed in 17 black]

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everything's everything black but this guy did and well you know the dance [Owner of the casino victory dancing in front of the mogul]

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