Reference no: EM133560476

Question: Rank the options using solely financial criteria. Make sure to explain both the theory behind the rankings and provide the necessary computations:

- All of the team members' financial answers were varied due to the different interest rates each member acquired as well as their calculations used to compute the relevant values to complete their calculations. This means that each member's total monthly payment (property + bank) for the bank options, each person had different values. Although we all had the same interest rate of 6.69% for BOQ, we all agreed that it was more difficult to find an interest rate value for QCB and as a result we all had very different interest rates (5.99%, 6.14%, 5.84% and 6.34%). Reasons for this variation were thought to be due to looking at different sections of the bank website and potentially not prioritizing an interest of 3-year fixed rates. As each team member managed to find a different interest rate, it is also likely that each member took into account different additional cash flows, which would have additionally contributed to the variations in the final calculations. For example, Isabel used an interest rate of 5.99% for QCB whereas Tom used an interest rate of 6.14% for this bank, therefore this greatly affected their end results of Isabel ranking the Buy option for QCB as 2nd, and Tom ranking the buy option for QCB as 4th.

One major discrepancy in team member's rankings was that while some team members ranked the overall buy option (of both banks) higher, others thought the rent option (of both banks) had greater savings. For instance, while Isabel ranked both the BOQ and QCB Buy option as 1st and 2nd, Harisa had the BOQ and QCB Rent options as 1st and 2nd.

Despite discrepancies between team members calculations and interest rates used, after discussion, our overall ranking of the options includes;

Rent - BOQ
Rent - QCB
Buy - BOQ
Rent - QCB
To get to this decision, team members discussed and compared the interest rates they used and where they obtained these from. Through this discussion we determined that some interest rates found by members were more accurate than others and were able to narrow down the options from this. Additionally, we discussed our values used for additional cash flow information and where these were obtained from. Again, after discussion, it was obvious that some cash flows were more accurate than others, and therefore these rankings were prioritized. Lastly, team members discussed the methods they used to calculate all values used, especially the PV of the Buy options and how they went about completing this. From this, the above rankings were determined and agreed upon.

Were there any differences in the answers to Q1-4? Where did they come from? How to resolve it? ( if there are no differences identified, list what was the most challenging about this exercise and why.

- It is evident from the group discussion that each group member had contrasting answers to questions 1 - 4. This is most likely due to variation in regards to interest rates that each member used, which would have altered the individual calculations therefore, producing a range of results. While there was a consensus among all participants in regard to the interest rate for BOQ, which was identified as 6.69%, there were notable discrepancies in the assigned interest rates for QCB. Specifically, individual members presented divergent rates with Max opting for 5.84%, Isabel for 5.99%, Harisa for 6.34%, and myself on 6.14%. This was most likely because of each member having done individual research leading to different rates. Due to the varying interest rates for QCB which would have altered the calculations and relevant values, each group member's total monthly payments (property + bank) for the buy option were also noticeably inconsistent. Moreover, the answers for the PV of the buy and rent options for QCB and BOQ were again affected by the different interest rates resulting in contradicting results. In order to resolve these differences, each team member together re-considered the options for QCB interest rates sufficing that some group members had not chosen the optimal rates and after further discussion were able to come to conclusion on the ideal choice.

What are the most important non-financial factors that are considered by all members, for both lender and buy vs. rent, and why?

- Outline any differences you encountered and whether views have been influenced by other team members.

After intense discussion between group members various pivotal non financial factors could be identified for both lenders as well as buy vs rent. Tom placed emphasis on how one's lifestyle can be immensely impacted based upon their decision to buy or rent. Rental agreements usually tend to exist as more temporary arrangements ranging from approximately a year and above. Not permanently fixating the tenant in one property for prolonged periods of time. Whilst buying property requires a tremendous amount of commitment. With some loans ranging to an immense 30 years. Ultimately influencing a person's desired lifestyle based upon their housing situation. In regards to a lender, Isabel prioritized the seller's reputation. A brand's ability to uphold a reliable status goes a colossal way in the eyes of consumers. Aspects such as previous positive impressions and recommendations directly correlate to customers experiences with the brand. Dramatically impacting the way a person may now approach a specific lender. Again in relation to the lenders, Harisa highlighted the importance of customer satisfaction. Maintaining the ideal that positive interactions between consumers and lenders will result in increased levels of business. Acting as a way to retain previous consumers, so long as their exchange left the party content with their level of service. Although no distinct differences could be found once the discussion commenced, to hear the other perspectives presented provoked thought regarding alternative non-financial factors. That although others may not have mentioned, provide additional context to the question.