Total Posts:3|Showing Posts:1-3
Jump to topic:

Financing Decision- A Challenge

Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
11/2/2013 7:57:00 AM
Posted: 3 years ago
Cudn't find any section for management Science and finance so posting here.....

A Challenge!

Being a finance Manager, Your client is interested in buying a business. You help structure the transaction and draw up the appropriate documents. The client has been offered two ways to pay to pay the 400000 purchase price. One is for cash, which ur client cud finance by borrowing from the bank with a 9% loan payable over 10 years---annual payments due on December 31 of each year. The other is a structured purchase as follows; 40000 per year for 10 years by December 31 of each year, beginning next year plus year accrued interest on the outstanding balance at an interest rate of 6% for the first five years, then 10% for next five (6 to 10) years' period.

Which one is the best deal for your client?
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~
wrichcirw
Posts: 11,196
Add as Friend
Challenge to a Debate
Send a Message
11/4/2013 10:13:12 AM
Posted: 3 years ago
At 11/2/2013 7:57:00 AM, Dazz wrote:
Cudn't find any section for management Science and finance so posting here.....

A Challenge!

Being a finance Manager, Your client is interested in buying a business. You help structure the transaction and draw up the appropriate documents. The client has been offered two ways to pay to pay the 400000 purchase price. One is for cash, which ur client cud finance by borrowing from the bank with a 9% loan payable over 10 years---annual payments due on December 31 of each year. The other is a structured purchase as follows; 40000 per year for 10 years by December 31 of each year, beginning next year plus year accrued interest on the outstanding balance at an interest rate of 6% for the first five years, then 10% for next five (6 to 10) years' period.

Which one is the best deal for your client?

I haven't broken it out, but in almost every conceivable way, the 2nd scenario will save your client money both in the short and long run. Both involve debt, so your point that the first scenario is "all cash" is bogus and misleading, as is your point that the 2nd scenario is only "40000 per year".
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
Dazz
Posts: 1,163
Add as Friend
Challenge to a Debate
Send a Message
11/4/2013 1:02:02 PM
Posted: 3 years ago
At 11/4/2013 10:13:12 AM, wrichcirw wrote:
At 11/2/2013 7:57:00 AM, Dazz wrote:
Cudn't find any section for management Science and finance so posting here.....

A Challenge!

Being a finance Manager, Your client is interested in buying a business. You help structure the transaction and draw up the appropriate documents. The client has been offered two ways to pay to pay the 400000 purchase price. One is for cash, which ur client cud finance by borrowing from the bank with a 9% loan payable over 10 years---annual payments due on December 31 of each year. The other is a structured purchase as follows; 40000 per year for 10 years by December 31 of each year, beginning next year plus year accrued interest on the outstanding balance at an interest rate of 6% for the first five years, then 10% for next five (6 to 10) years' period.

Which one is the best deal for your client?

I haven't broken it out, but in almost every conceivable way, the 2nd scenario will save your client money both in the short and long run. Both involve debt, so your point that the first scenario is "all cash" is bogus and misleading, as is your point that the 2nd scenario is only "40000 per year".

Yes, 1st option is debt, in term of borrowing cash from bank. 2nd option is debt in terms of borrowing the business itself.

Still, it's all cash in terms of buying the "business"(In 1st option, cash is further borrowed by the bank_ a debt). And Business itself is a term-debt if we choose 2nd option that is not to pay the cash but make it due on installments.
Yes the whole scenario and text is Misleading but it's as we got in exams lol, but yeah we got the solution...................just after leaving the exam hall.

Its not only 40000, but accrued interest is added on outstanding balance each year.

Anyway 2nd option is better. But it's not much easy to conclude that as. There is a process......... comparison of both after calculations.
Remove the "I want", remainder is the "peace". ~Al-Ghazali~
"This time will also pass", a dose to cure both; the excitement & the grievance. ~Ayaz~