Geico is contemplating increasing an current plant on a chunk of land it already
owns. The land was bought 15 years in the past for $325,000, and its present market
appraisal is $820,000. A capital budgeting evaluation reveals that the plant
enlargement has a
current worth of $130,000. The enlargement will price $1.73 million, and the
discounted money inflows are $1.86 million. The enlargement price of $1.73 million
doesn’t embrace any provision for the price of the land. The supervisor making ready
the evaluation argues
the historic price of the land is a sunk price, and because the agency intends to
preserve the land whether or not or not the enlargement mission is accepted, the present
appraisal worth is irrelevant. Ought to the land be included within the evaluation? If
dwelling similar to yours in your neighborhood, offered final week for $150,000. Your
dwelling has a $120,000 assumable, eight% mortgage (compounded yearly) with 30 years
remaining. An assumable mortgage is one which the brand new purchaser can assume on the
previous phrases, persevering with to make funds on the authentic rate of interest. The home
that lately offered didn’t have an assumable mortgage; that’s, the patrons had
to finance the home on the present market charge of curiosity, which is 15%. What
worth must you ask on your dwelling? A 3rd dwelling, once more similar to the one
that offered for $150,000, can be being provided on the market. The one distinction
between this third dwelling and the $150,000 house is the property taxes. The
$150,000 dwelling’s property taxes are $three,000 per yr, whereas the third dwelling’s
property taxes are $2,000 per yr. The variations within the property taxes are
resulting from vagaries in how the property tax assessors assessed the taxes when the
houses have been constructed. On this tax jurisdiction, as soon as annual taxes are set, they’re
mounted for the lifetime of
dwelling. Assuming the market charge of curiosity continues to be 15%, what ought to be the
worth of this third dwelling?
Division Suppose you’re the supervisor of a mortgage division at a financial savings
financial institution. Underneath the state usury regulation, the utmost rate of interest allowedfor
mortgages is 10% compounded yearly. 1.
If you happen to granted a $50,000 mortgage on the most charge for 30 years, what would
be the equal annual funds? 2.
If the present market inner charge on comparable mortgages is 12%, how a lot cash
does the financial institution loseby
issuing the mortgage described in (a)? three.
The usury regulation doesn’t prohibit banks from charging factors. One level means
that the borrower pays 1% of the $50,000 mortgage again to the lending establishment at
the inception of the mortgage. That’s, if one level is charged, the repayments are
computed as in (a), however the borrower receives solely $49,500. What number of factors
should the financial institution cost to earn 12% on the 10% mortgage?