Buy On Time or Pay Cash Cost of Borrowing 1. 2. 3. 4. 5. 6. 7. 8. Cost of Paying Cash 9. 10. 11. Net Cost of Borrowing 12. Terms of the loan a. Amount of the loan b. Length of the loan (in years) c. Monthly payment Total loan payments made ($ per month Less: Principal amount of the loan Total interest paid over life of loan Tax considerations: months) - Is this a home equity loan? - Do you itemize deductions on your federal tax return? What federal tax bracket are you in? Taxes saved due to interest deductions X 0 %) ($ Total after-tax interest cost on the loan Annual interest earned on savings (5% x Annual after-tax interest earnings ($ %) Total after-tax interest earnings over life of loan years) Difference in cost of borrowing versus cost of paying cash because: $15,000 5 $289.95 yes yes 10% +A 0.00 Based on the numbers alone, you should borrow the money O The interest on a loan will cost you more than the interest you would earn if you invested the principal.
Buy On Time or Pay Cash Cost of Borrowing 1. 2. 3. 4. 5. 6. 7. 8. Cost of Paying Cash 9. 10. 11. Net Cost of Borrowing 12. Terms of the loan a. Amount of the loan b. Length of the loan (in years) c. Monthly payment Total loan payments made ($ per month Less: Principal amount of the loan Total interest paid over life of loan Tax considerations: months) - Is this a home equity loan? - Do you itemize deductions on your federal tax return? What federal tax bracket are you in? Taxes saved due to interest deductions X 0 %) ($ Total after-tax interest cost on the loan Annual interest earned on savings (5% x Annual after-tax interest earnings ($ %) Total after-tax interest earnings over life of loan years) Difference in cost of borrowing versus cost of paying cash because: $15,000 5 $289.95 yes yes 10% +A 0.00 Based on the numbers alone, you should borrow the money O The interest on a loan will cost you more than the interest you would earn if you invested the principal.
Chapter16: Real Estate And High-risk Investments
Section: Chapter Questions
Problem 3DTM
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![CENGAGE MINDTAP
Ch 07: Assignment - Using Consumer Loans
12. Buy on time or pay cash?
You are going to make a substantial purchase. You have enough money to pay cash, but don't know if that's the way to make best use of your assets.
Maybe you should take out an installment loan to make the purchase and invest the cash you would otherwise have used to pay for it.
Use the information provided to complete the following worksheet and analyze how the numbers work out most favorably for you. For simplicity,
compounding is ignored in calculating both the cost of interest and interest earnings. [Note: Enter your dollar answers rounded to the nearest two
cents and precede numbers that are less than zero (0) with a minus sign (-).]
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Transcribed Image Text:CENGAGE MINDTAP
Ch 07: Assignment - Using Consumer Loans
12. Buy on time or pay cash?
You are going to make a substantial purchase. You have enough money to pay cash, but don't know if that's the way to make best use of your assets.
Maybe you should take out an installment loan to make the purchase and invest the cash you would otherwise have used to pay for it.
Use the information provided to complete the following worksheet and analyze how the numbers work out most favorably for you. For simplicity,
compounding is ignored in calculating both the cost of interest and interest earnings. [Note: Enter your dollar answers rounded to the nearest two
cents and precede numbers that are less than zero (0) with a minus sign (-).]
Q Search this course
?
Khloe ✓
A-Z
Transcribed Image Text:CENGAGE MINDTAP
Ch 07: Assignment - Using Consumer Loans
Buy On Time or Pay Cash
Cost of Borrowing
1.
2.
3.
4.
5.
6.
7.
8.
Cost of Paying Cash
9.
10.
11.
Net Cost of Borrowing
12.
Terms of the loan
a. Amount of the loan
b. Length of the loan (in years)
c. Monthly payment
Total loan payments made
($
per month
Less: Principal amount of the loan
Total interest paid over life of loan
Tax considerations:
- Is this a home equity loan?
- Do you itemize deductions on your federal tax return?
What federal tax bracket are you in?
Taxes saved due to interest deductions
($
0 %)
Total after-tax interest cost on the loan
X
Annual interest earned on savings
(5% X
)
Annual after-tax interest earnings
($
%)
Total after-tax interest earnings over life of loan
($
years)
X
months)
X
Difference in cost of borrowing versus cost of paying cash
Based on the numbers alone, you should borrow the money
because:
$15,000
5
$289.95
yes
yes
10%
+A
LA
tA
LA
0.00
The interest on a loan will cost you more than the interest you would earn if you invested the principal.
Q Search this course
?
Khloe ✓
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