Question
In: Accounting
Assume that you are about to sell property (a vacant parcel of real estate) you own...
Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales-commission selling price for the property is $460,000. You are willing to finance this transaction over a 21-year period and have told the buyer that you expect an 8% pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives.
Required:
1. What will be your periodic cash receipt, to earn a 8% return, if payments are received from the purchaser: NOTE: to answer the above questions, use the PMT function in Excel, as follows: PMT(rate,nper,pv,fv,type) where: rate is the interest rate for the loan, nper is the total number of payments, pv is the present value (i.e., the total amount that a series of future payments is worth now; also known as the principal), fv is the future value (or a cash balance you want to attain after the last payment is made; if fv is omitted, it is assumed to be 0 (zero)), and type is the number 0 (zero) or 1 and indicates when payments are due (if omitted, or 1 is chosen, it is assumed that payments occur at the end of each period). Additionally, what is the total of cash receipts over a 21-year period for each of the four situations? a. At the end of each week? b. At the end of each month? c. At the end of each quarter? d. At the end of each year?
Solutions
Expert Solution
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| PMT= Monthly payments | PV*i | ||||||||||||||
| 1-(1+i)^-n | |||||||||||||||
| a. At the end of each week? | a. At the end of each month? | a. At the end of each quarter? | a. At the end of each year? | ||||||||||||
| IF rate 8% | IF rate 8% | IF rate 8% | IF rate 8% | ||||||||||||
| PMT= | Monthly payment= ? | PMT= | Monthly payment= ? | PMT= | Monthly payment= ? | PMT= | Monthly payment= ? | ||||||||
| PV= | Loan amount= 460,000 | PV= | Loan amount= 460,000 | PV= | Loan amount= 460,000 | PV= | Loan amount= 460,000 | ||||||||
| n= | no. of payments= 21*52=1092 | n= | no. of payments= 21*12=252 | n= | no. of payments= 21*4=84 | n= | no. of payments= 21*1=21 | ||||||||
| i | 8%/52= 0.00153846153846154 | i | 8%/12= 0.00666666666666667 | i | 8%/4= 0.02 | i | 8%/1= 0.08 | ||||||||
| PMT | 460000*0.00153846153846154 | PMT | 460000*0.00666666666666667 | PMT | 460000*0.02 | PMT | 460000*0.08 | ||||||||
| 1-(1+0.00153846153846154)^-1092 | 1-(1+0.00666666666666667)^-252 | 1-(1+0.02)^-84 | 1-(1+0.08)^-21 | ||||||||||||
| PMT | 707.6923077 | PMT | 3066.66667 | PMT | 9200 | PMT | 36800 | ||||||||
| 1-(1.00153846153846154)^-1092 | 1-(1.00666666666666667)^-252 | 1-(1.02)^-84 | 1-(1.08)^-21 | ||||||||||||
| PMT | 707.6923077 | PMT | 3066.66667 | PMT | 9200 | PMT | 36800 | ||||||||
| 1-0.186614737195014 | 1-0.187415956678957 | 1-0.189489684200306 | 1-0.198655747596348 | ||||||||||||
| PMT | 707.6923077 | PMT | 3066.66667 | PMT | 9200 | PMT | 36800 | ||||||||
| 0.813385263 | 0.81258404 | 0.81051032 | 0.80134425 | ||||||||||||
| Monthly payments | 870.06 | A | Monthly payments | 3,773.97 | A | Monthly payments | 11,350.87 | A | Monthly payments | 45,922.84 | A | ||||
| n | 1,092.00 | B | n | 252.00 | B | n | 84.00 | B | n | 21.00 | B | ||||
| Total of cash receipts | 950,103.27 | C=A*B | Total of cash receipts | 951,040.09 | C=A*B | Total of cash receipts | 953,473.37 | C=A*B | Total of cash receipts | 964,379.54 | C=A*B | ||||
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