Question
Cost of oil (COGS) per year {A} $9,000.00 Infusion equipment {B} $4,000.00 Bottling equipment {C} $5,000.00 Other materials {D} $4,200.00 Financing interest rate {E} 4.60%
Cost of oil (COGS) per year | {A} | $9,000.00 |
Infusion equipment | {B} | $4,000.00 |
Bottling equipment | {C} | $5,000.00 |
Other materials | {D} | $4,200.00 |
Financing interest rate | {E} | 4.60% |
Compounding periods per year (CY) | {F} | monthly |
Length of amortization (years) | {G} | 3 |
Savings | {H} | $26,900.00 |
Property and truck cost | {I} | $190,000.00 |
Mortgage rate | {J} | 3.50% |
Term of mortgage | {K} | 8 |
Bond face value | {L} | $39,000.00 |
Time until maturity | {M} | 3 |
Bond rate | {N} | 3.20% |
Startup Loan
The entrepreneurs financed the total of these costs with end-of-month payments through a loan from the bank at {E} compounded {F}, amortized over {G} years.
They began selling the flavoured olive oil to local restaurants, at the local farmers market, and online. Pizazz was the talk of the college campus and it was making a modest profit.
After graduating, it was decided that they should expand their operations by renting a retail store in the city and adding 10 new flavours to their product line. They also hired an assistant to run the store, and a delivery person to handle personal orders.
After two years of successfully managing Pizazz, they managed to save {H}. At this time, they must decide if they should invest their savings in property (capital expenditures) or investment bonds.
Capital Expenditures
Their savings can be used as a down payment to purchase a warehouse property with manufacturing capabilities, and a delivery truck. The property and truck have a combined total cost of {I}, of which {H} will be required as a down payment.
The fixed interest rate on the mortgaged amount (for the property and truck) is {J} compounded {F} for a term of {K} years.
Investment Bonds
A {L} bond is set to mature in {M} years. The bond rate is {N} payable semi-annually. The market rate is {J}, compounded {F} (the same rate available on the mortgage). Jenna, Jean and Kim will only purchase this bond if they can afford it, and if they can get it at a discount, because they think the market rate will go down, making the bond more valuable in the future.
Answer the following questions related to these debts and bond:
Startup Loan
- What were their monthly payments to settle this loan?
- What was the principal balance outstanding on the loan after one year?
- What will be the size of the final payment?
- Construct a partial amortization schedule for this loan. Feel free to use the template provided in the Excel Spreadsheet to help you.
Mortgage on Property and Truck
- What were their monthly payments to settle this mortgage?
- What will be the size of the final payment?
- Construct a partial amortization schedule for this loan. Feel free to use the template provided in the Excel Spreadsheet to help you.
- How long would it take to settle this loan with regular monthly payments of exactly $2000 instead of the PMT value calculated in part (a)?
Investment Bonds
- Calculate the purchase price of the bond if it is purchased today ({M} years before maturity).
- Do Jenna, Jean, and Kim have enough money to buy their bond using their {H} in savings? Should they purchase the bond? Why or why not?
PAYMENT NUMBER AMOUNT PAID INTEREST PAID PRINCIPAL REPAID OUTSTANDING PRINCIPAL BALANCE TOTALS:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started