User Account

All Pages

Find which offer should james accept

Assignment Help Financial Accounting
Reference no: EM132531130

McCormick & Company is considering building a new factory in Largo, Maryland. James Francis, a landowner, is selling a 4.35-acre parcel of industrial zoned land with a listed sale price of $3,000,000.00 for the land. McCormick & Company is interested in the land and so is another manufacturing company. The competing manufacturing company has made an offer of $2,300,000.00 in cash and $300,000 each year for 15 years for the land. McCormick & Company knows it can make an offer to outbid the competitor to obtain the land. So, McCormick & Company decided to offer $4,424,000.00 in cash.

Now, the land owner, James Francis, must make a decision between the two competing offers. To make this decision, James should first identify the Present Value (PV) of each offer. James's bank is offering a 12 percent (12%) interest rate if the competing manufacturing company borrows money to pay its annual payment. Let's help James make his decision by answering the following questions using the template to the right.

Question 1. What is the Present Value (PV) of each offer? To find out, complete the chart to the right.

Question 2. Based on your Present Value calculations, which offer should James accept?

McCormick & Company has decided in order for the company to have a minimal impact on current cash flows, the company will need to borrow seventy percent (70%) Loan to Value (LTV) of the $4,424,000.00 offer in the form of a commercial acquisition and development loan to purchase the land. This means McCormick & Company will need to make a thirty percent (30%) down payment to secure the commercial acquisition and development loan. McCormick & Company is considering three different loan options:

Loan A: 20-year loan with a fixed annual interest rate of 6 percent

Loan B: 10-year loan with a fixed annual interest rate of 4.5 percent

Loan C: 15-year loan with a fixed annual interest rate of 5 percent

Question 3. How much of the total $4,424,000.00 offer will be financed?

Question 4. Which loan will have the lowest monthly payment?

Question 5. Which loan will have the lowest total payback amount?

Question 6. Would you recommend McCormick & Company select the loan with lowest monthly payment or lowest total payment and why?

Reference no: EM132531130

Questions Cloud

Which company do you believe is winning the competition : Find a recent article or video describing the competition between two or more businesses. Post a link to the article or video in the discussion thread.
Prepare the entries to record the issuance of the bonds : Prepare the entries to record the issuance of the bonds and the first semiannual interest payment assuming that the company uses straight-line amortization
Describe differences between formal and informal research : Write a paper that describes the differences between formal and informal research. What are the benefits and the drawbacks? Provide examples of when might you.
Is a progressive tax better than a proportional tax : Does a fair tax exist? Is a progressive tax better than a proportional tax? These are difficult questions since taxes affect people in different household situa
Find which offer should james accept : What is the Present Value ,Would you recommend McCormick & Company select the loan with lowest monthly payment or lowest total payment and why?
How much ordinary income will be allocated to Boots : Dora and Boots are equal partners in the Grumpy Old Troll Partnership. How much ordinary income will be allocated to Boots
What is the range of the future actual exchange rate : What is the range of the future actual exchange rate (AUD/USD) in 1 year that will make your carry trade profitable?
What are some of the factors that affect vigilance : What are some of the factors that affect vigilance. Which one do you think is the most detrimental and why? What would you do to remedy this problem?
How should modify assumption about the rate of return : When you assume this higher risk-free interest rate, what makes sense for how should modify your assumption about the rate of return on the market portfolio?

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd