Question

Mr Sultan al Hadrami is planning to construct his own house. He is planning to construct the house in a phased manner. At present he is working with Oman Air and is earning salary RO 12000 every year . The Cost of Construction of the house is RO 50,000 if the construction is completed in one year. However if the construction is done in parts, the cost of contrition will increase and may go up to 60000 if completed in six years. Mr Sultan is seeking your advice on the two option.

Option A- Take a loan from bank for RO 50,000 now and construct the house in one year The loan will be for 6 years with interest on the loan @ 8%p.a. The amount of the loan could be repaid in monthly installments.

Option B Construct the house in parts ( without loan ) In this option Mr Sultan expects to save RO 900 every month. At the end of each year he will used his saving and construct some part of the house. So in this way he will take six years to complete the House. The interest on saving will be @ 6%p.a..

You are required to evaluate the above two options and suggest
a) The total amount to be paid in Option A
b) The total amount to be saved and used in construction in Option B

Note :need solve in Microsoft Excel

Answer 1

Option B						Option A
Estimation of fund Investment using monthly deposit of fund in Saving A/c						Loan repyament of Fund
Monthly Saving		900				Principal Amount	50000
Saving Interest		6%				Rate of Interest	8%
Month	Investment	Interest	Deployment of fund	Cumulative Amount		Month	Interest	Repayment	Loan Balance
1	900	0	0	900		1	333	1014	49320
2	900	5	0	1805		2	329	1014	48635
3	900	9	0	2714		3	324	1014	47945
4	900	14	0	3627		4	320	1014	47251
5	900	18	0	4545		5	315	1014	46552
6	900	23	0	5468		6	310	1014	45849
7	900	27	0	6395		7	306	1014	45140
8	900	32	0	7327		8	301	1014	44428
9	900	37	0	8264		9	296	1014	43710
10	900	41	0	9205		10	291	1014	42988
11	900	46	0	10151		11	287	1014	42260
12	900	51	11102	0		12	282	1014	41528
13	900	0	0	900		13	277	1014	40791
14	900	5	0	1805		14	272	1014	40049
15	900	9	0	2714		15	267	1014	39303
16	900	14	0	3627		16	262	1014	38551
17	900	18	0	4545		17	257	1014	37794
18	900	23	0	5468		18	252	1014	37032
19	900	27	0	6395		19	247	1014	36265
20	900	32	0	7327		20	242	1014	35493
21	900	37	0	8264		21	237	1014	34716
22	900	41	0	9205		22	231	1014	33934
23	900	46	0	10151		23	226	1014	33146
24	900	51	11102	0		24	221	1014	32353
25	900	0	0	900		25	216	1014	31555
26	900	5	0	1805		26	210	1014	30752
27	900	9	0	2714		27	205	1014	29943
28	900	14	0	3627		28	200	1014	29129
29	900	18	0	4545		29	194	1014	28309
30	900	23	0	5468		30	189	1014	27484
31	900	27	0	6395		31	183	1014	26654
32	900	32	0	7327		32	178	1014	25817
33	900	37	0	8264		33	172	1014	24976
34	900	41	0	9205		34	167	1014	24128
35	900	46	0	10151		35	161	1014	23276
36	900	51	11102	0		36	155	1014	22417
37	900	0	0	900		37	149	1014	21553
38	900	5	0	1805		38	144	1014	20682
39	900	9	0	2714		39	138	1014	19807
40	900	14	0	3627		40	132	1014	18925
41	900	18	0	4545		41	126	1014	18037
42	900	23	0	5468		42	120	1014	17144
43	900	27	0	6395		43	114	1014	16244
44	900	32	0	7327		44	108	1014	15339
45	900	37	0	8264		45	102	1014	14427
46	900	41	0	9205		46	96	1014	13509
47	900	46	0	10151		47	90	1014	12586
48	900	51	11102	0		48	84	1014	11656
49	900	0	0	900		49	78	1014	10720
50	900	5	0	1805		50	71	1014	9777
51	900	9	0	2714		51	65	1014	8829
52	900	14	0	3627		52	59	1014	7874
53	900	18	0	4545		53	52	1014	6912
54	900	23	0	5468		54	46	1014	5945
55	900	27	0	6395		55	40	1014	4971
56	900	32	0	7327		56	33	1014	3990
57	900	37	0	8264		57	27	1014	3003
58	900	41	0	9205		58	20	1014	2009
59	900	46	0	10151		59	13	1014	1009
60	900	51	11102	0		60	7	1014	1
			55510					60828
Additional fund at 6th year end			4490