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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