Determine how much profit the mortgage company

Assignment Help Financial Management

Reference no: EM132040822

1 Which would you rather have (i.e., which is worth more five years in the future) if the annual effective interest rate is 3.5%: a. $12 000 today, or b. Five (5) annual payments of $3,000 beginning at the end of year one.

2. You’ve purchased your first home. The property taxes on it are $3,500 per year. The mortgage stipulates that the owner must pay 1/12 of the annual taxes each month to the bank so that the taxes can be paid on April 1. Your first payment is at the end of April and the last payment is at the end of March of the following year. Assume that cost of money is 6.5% nominal annual interest, compounded monthly. a. Draw the cash flow diagram for one year. b. What is the effective annual interest rate (in %)? c. Determine how much profit (in $) the mortgage company makes each year on the owner's tax money. Profit in this case is the difference in the sum of the amount you pay and the amount paid in property taxes.

3. Joan Student is projecting that she will owe a total of $28,750 in student loans when she graduates. The loans have an annual nominal interest rate of 6.5%, compounded monthly. The entire amount must be repaid within 10 years and she will make the minimum monthly payments (120 payments). a. Draw the cash-flow diagram that describes this situation. b. What is the effective annual interest rate (in %)? c. Determine what her minimum monthly payment will be.

4. A firm purchased some equipment at a price of $150,000. The equipment resulted in an annual net savings of $6,000 per year during the 10 years it was used. At the end of 10 years, the equipment was sold for $110,000. Draw a cash-flow diagram that depicts the situation. Assuming an annual effective interest rate of 6.5%, what was the equivalent cost to the company of this transaction on the purchase date?

5. Two machines are being considered to do a certain task in a manufacturing plant. Machine A costs $240,000 new and $26,000 to operate and maintain each year. Machine B costs $320,000 new and $12,000 to operate and maintain each year. The machines are identical in all other aspects and will have no salvage value after eight (8) years. Assume an annual effective interest rate of 7.0%. Determine (by the equivalent uniform annual cost method) which alternative is least expensive.

Reference no: EM132040822

Questions Cloud

The required rate of return on the market : The risk-free rate of return is 5%, the required rate of return on the market is 15%, and High-Flyer stock has a beta coefficient of 1.0.

Difference between systematic and unsystematic risk : Explain difference between systematic and unsystematic risk. Also explain why one of these types of risks is rewarded with risk premium while other type is not,

What is the wacc for company : The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk free rate is 4 percent. What is the WACC for the company?

Professional baseball fans : 64?% of men consider themselves professional baseball fans. You randomly select 10 men and ask each if he considers himself a professional baseball fan.

Determine how much profit the mortgage company : Determine how much profit (in $) the mortgage company makes each year on the owner's tax money.

Grade point average increase or decrease : Help me find the grade point average? Will the grade point average increase or decrease and by how much?

Brief on the effects the legislation : Write a 700- to 1,050-word policy brief on the effects the legislation will have on your selected facility or service and on the state's population

What is the probability of a correct guess on the first? try : Repetition of digits is allowed. What is the probability of a correct guess on the first? try?

Explain the advantages and challenges related to friendships : Then explain the advantages and challenges that Alberto and Jeanette would encounter related to friendships, romantic relationships.

User Account

All Pages