Question

Question 1: (35 marks) (a) From an advertisement of property development company, Mary learns that the following payment plans are available for a property with market price of $6,000,000: Plan (A) (i) Down payment of $2,000,000 upon signing of provisional sales and purchase agreement; (ii) $2,000,000 will be paid after one year; (iii) A final payment of $2,000,000 when the property is ready for occupancy as at the end of the second year. Plan (B) Purchaser will enjoy a price discount of 3% and a rebate of $30,000 cash if he/she makes full payment at the time of signing of the provisional sales and purchase agreement. Assuming Mary uses a discount rate of 4% for her calculations, which plan should Mary take? (correct to 2 decimal places) (10 marks)

Answer 1

Question is answered in hand written notes

(0) Plan A Yr Discounting factor (@4%) Installment Install 2000 000 2000000 20000 0 0 0.962 0.925 Present value 2000000 1924ooo 1850000 577 4000 (Rounded off) (6) Plan B : - Assume payment is made in present (oth) year i i, e immediately (int) Property's value 6000000 W Discount (@3%) (18 ww) (-) Rebate 1300) 5790 present value of payment Its better to ept for Plan A because is less in Plan A by $16000 .