Which loan will have the lowest monthly payment

Assignment Help Financial Accounting

Reference no: EM132759518

Question - 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 Future Value (FV) of each offer. James's bank is offering a 12 percent (12%) interest rate when invested through the bank-managed growth stock portfolios. Let's help James make his decision by answering the following questions using the template to the right.

1. Without any calculation involving TVM, what offer would James accept?

2. Using PV and/or FV, which offer should James accept? Does it change your perspective? Elaborate and explain.

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

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

4. Which loan will have the lowest monthly payment?

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

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

Reference no: EM132759518

Questions Cloud

What was the growth rate for roger investment : Roger invested in the DWJ Pacific Growth Mutual Fund at the end of 2008. What was the growth rate for Roger's investment in 2011?

Discuss the components and use of financial analysis : Explain the impact of accounting transactions in financial statements. Discuss the components and use of financial analysis

Calculate cost of goods sold and ending inventory using fifo : Snowboarding Company, Calculate the cost of goods sold and ending inventory using FIFO. Write the journal entries for November 12, 16, 22.

Healthcare is growing like new industry : Healthcare is growing like a new industry and it will keep evolving due to advances in science and technology.

Which loan will have the lowest monthly payment : Loan C: 15-year loan with a fixed annual interest rate of 5 percent. Which loan will have the lowest monthly payment

How much manufacturing overhead was applied : Job 105M-T had direct material costs of $4,110 and a total manufacturing cost of $23,820. How much manufacturing overhead was applied

Show the schedule to estimate the amount of cash each : Show the schedule to estimate the amount of cash each brother will receive. The unsuccessful partnership of the Jones Brothers is about to undergo

How you might be able to apply the concept in your life : Share what interested you about this concept. Share how this concept impacts you personally, professionally, or in relevant current events.

Organization ability to adopt innovative practices-processes : Identify at least three barriers that impede an organization's ability to adopt innovative practices and processes.

User Account

All Pages