Determine the most productive way of deploying capital
Course:- Financial Management
Reference No.:- EM13942998

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Financial Management

There are many different scenarios that we have to determine the most productive way of deploying capital, such as: buying versus leasing a car, buying insurance whole life versus term, and of course buying versus renting a home.

You are to create a spreadsheet that tracks the cash flows of a person that had a home buying experience over their lifetime and determine whether they would have been better off buying or leasing their home and investing in some other investment.

The scenario is as follows:

House 1 Buys a house November 1991 for 170,000 Sells the house June 2003 for 650,000 The house was bought with an 80% mortgage with an 8% interest rate and 30 year amortization. Taxes in the first year were 6500 and rose 3% per year. Insurance was 900 for the year and increased 3% per year. Rent would have been 1500 per month.

House 2 Bought in June 2000 for 870,000 Sold November 2015 for 840,000 The house was bought with an 80% mortgage with a 5.25% interest rate and 30 year amortization. Taxes in the first year were 16000 and rose 3% per year. Insurance was 1500 and increase 3% per year. Rent would have been 5200 per month.

Capital. Assume that if you need capital you have it to put in you take it out of real estate then do not calculate returns after the distribution.

The investment can be anything you like, S&P Index, Home Depot Stock, gold, etc (if stock, not more than 25% can be in apple). If you use a specific stock, you must track price, splits and dividends. Take the cash flows from the houses over time and compare that to the cash flows that you would have received had you not bought a house but rented a home and invested instead. You should use various metrics to determine which worked out better. NPV, IRR, Annual Cash on Cash Return and any other metric that you decide is useful. If you have to add cash then add to your alternative investment if cash comes out of the real estate then it comes out for both investments.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
Maloney, Inc., has an odd dividend policy. The company has just paid a dividend of $4 per share and has announced that it will increase the dividend by $6 per share for each o
Bernie’s, Sander Company is considering making a $35,000 investment and is expecting the following cash flows for two potential alternatives. Which of the alternatives would B
The Altoona Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 9% annual rate. What is the bond's price today if t
A stock had annual returns of 16 percent, 8 percent, -17 percent, and 21 percent for the past four years. Based on this information, what is the 95 percent probability range o
The shareholders of the Spartan Corp. are electing six individuals to serve as directors on their board. There are 3 million shares outstanding. How many shares would you need
Firm H's shares sell today for $62 and are forecast to be priced at $77.50 and to pay a dividend of $1.80 at the end of one year. Firm H's beta is 0.80, the market risk premiu
Wexford Industrial Supply is considering a new project with estimated depreciation of $33,000, fixed costs of $35,000, and total sales of $74,500. The variable costs per unit
You borrow $200,000 to buy a house. The mortgage rate is 7.5% and the loan period is 30 years. Payments are made monthly. If you pay the mortgage according to the loan agreeme