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In: Finance
Rick and Stacy Stark, a married couple, are interested in purchasing their first boat. They have...
Rick and Stacy Stark, a married couple, are interested in purchasing their first boat. They have decided to borrow the boat’s purchase price of $100,000. The family is in the 28% federal income tax bracket. There are two choices for the Stark family: They can borrow the money from the boat dealer at an annual interest rate of 8%, or they could take out a $100,000 second mortgage on their home. Currently, home equity loans are at rates of 9.2%. There is no problem securing either of these two alternative financing choices. Rick and Stacy learn that if they borrow from the boat dealership, the interest will not be tax deductible. However, the interest on the second mortgage will qualify as being tax deductible on their federal income tax return. a) Calculate the after-tax cost of borrowing from the boat dealership. b) Calculate the after-tax cost of borrowing through a second mortgage on their home. c) Which source of borrowing is less costly for the Stark family?
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jeff jeffy answered 1 year agoRelated Solutions
A married couple is purchasing a home for $198,000 and gave the broker a $10,000 earnest...
A married couple is purchasing a home for $198,000 and gave the
broker a $10,000 earnest money deposit. The buyers will finance the
purchase with a new 80% loan-to-value mortgage loan. The closing
date is March 18, with the closing day charged to the buyer.
Homeowners association dues are $325 monthly and were paid in
advance by the seller. Property taxes are $2,416. Prorations should
be made using the 365-day method. The sellers will pay the 6%
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A married couple is purchasing a home for $198,000 and gave the broker a $10,000 earnest...
A married couple is purchasing a home for $198,000 and gave the
broker a $10,000 earnest money deposit. The buyers will finance the
purchase with a new 80% loan-to-value mortgage loan.
The closing date is March 18, with the closing day charged to
the buyer. Homeowners association dues are $325 monthly and were
paid in advance by the seller. Property taxes are $2,416.
Prorations should be made using the 365-day method.
The sellers will pay the 6% brokerage fee, the...
Stacy is interested in purchasing Spud's Potato Chip Company. Spud's assets are: Adjusted Basis Fair market...
Stacy is interested in purchasing Spud's Potato Chip Company.
Spud's assets are:
Adjusted Basis
Fair market Value
Cash
2,300
2,300
Inventory
16,500
19,200
Equipment
13,000
9,000
Land
10,000
40,500
Building
66,600
129,000
Total
$108,400
$200,000
1. Prepare a table showing the basis of each asset if Stacy pays
a total of $240,000 for all the assets.
2. Prepare a table showing the basis of each asset if Stacy buys
all the stock of Spud's for $240,000.
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The past couple of months have been hard for Doug and Stacy.
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