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    Time Value of Money The Buy Versus Rent Decision - Solution

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    Solved Case of Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications, August 11, 2014

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    Time Value of Money The Buy Versus Rent Decision - Solution

    Uploaded by

    cpsoni
    7K views5 pages
    Solved Case of Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications, August 11, 2014

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    Time Value of Money the Buy Versus Rent Decision - Solution

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    Solved Case of Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications, August 11, 2014

    Copyright:

    Attribution (BY)
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    7K views5 pages

    Time Value of Money The Buy Versus Rent Decision - Solution

    Uploaded by

    cpsoni
    Solved Case of Time Value of Money: Buy versus Rent by Sean Cleary and Stephen Foerster, Ivey Publications, August 11, 2014

    Copyright:

    Attribution (BY)
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 5

    monthly rent 3000 May-13 Jul-14

    purchase price 600000


    requrement change 5-10 years even sooner if her job workout well
    condo + mtce 1355 50
    downpayment 120000
    tax 18000
    closing fees 2000
    pv 480000 if sale back
    rate (NIR) 0.04 0.05 of sp
    nper 300 2000 closing fees

    EAR 0.003305 0.00330589 ?


    1) (₹2,524.61)
    (₹3,929.61)
    2) 396.6 462.7 ignore tax component
    3) ₹4,326.21 ₹4,392.31
    Difference ₹1,326.21 ₹1,392.31

    Senario Analysis
    Initially 2 years 3 years
    Purchase Price 600000
    Legal fees 2000
    Deed transfer (@3%) 18000
    Down Payment (20%) 120000
    Total Due at Closing 140000
    Amortization Period (years) 25 23
    Payment Freqiency 12 12
    Number of Payment remaining 300 276

    Scenario 1 Price remain unchanged


    SP 600000
    Realter Fees (@5) 30000
    Other Selling fees 2000
    Princ OD 456609.29
    Net Proceeds 111390.71

    ______nds at Closing 140000


    Opp Cost of Extra Payments 34727.42

    Net FV -63336.72 76663.29

    PV of Future Net (NPV) ₹58,514.59


    Scenorio 2 down @ 10% original

    Scenario 3 increase by 2% annually

    Scenario 4 increase by 5%
    1) required monthly mortgage
    2) opportunity cost (on monthly basis)
    3) aditional monthly payments (including opportunit cost)
    4) resale in 2, 5, 10 years principal outstanding, future gain or loss

    scenarios
    a unchange
    b drop 10% over 2 yrs, back to original price in 5, then 10% by the end of 10 yrs
    c increases by annual rate of inflation of 2% for 10 yrs
    d increases by 5% annually for 10 yrs

    ? Why include Opportunity Cost Qualitative factors


    Ans Separate legal entity Pro social status, secure & independe
    Cons liquidity pressure

    Distance

    5 years
    original cost
    gain or loss

    by the end of 10 yrs

    cial status, secure & independent settlement, greater emotional attachement of ownership
    uidity pressure

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