Question

2 3 A B C D E F G H J K L M McCormick & Company is considering building a new factory in Largo, Maryland. James Francis, a landowner, is selling a 4.35-acre parcel of industrial zoned land with a listed sale price of $3,000,000.00 for the land. McCormick & Company is interested in the land and so is another manufacturing company. The competing manufacturing company has made an offer of $2,300,000.00 in cash and $300,000 each year for 15 years, for the land. McCormick & Company knows it can make an offer to outbid the competitor to obtain the land. So, McCormick & Company decided to offer $4,424,000.00 in cash. Now, the landowner must make a decision between the two competing offers. To make this decision, James should first identify the Future Value (FV) of each offer. James's bank is offering a 12 percent interest rate when invested through the bank-managed growth stock portfolios. Let's help James make his decision by answering the following questions using the template to the right. 1. What is the Future Value (FV) of each offer? 2. Based on your Future Value calculations, which offer should James accept? McCormick & Company has decided in order for the company to have a minimal impact on current cash flows, the company will need to borrow 70 percent Loan to Value (LTV) of the $4,424,000.00 offer in the form of a commercial acquisition and development loan to purchase the land. This means McCormick & Company will need to make a 30 percent down payment to secure the commercial acquisition and development loan. McCormick & Company is considering three different loan options: 18 19 20 Loan A: 20-year loan with a fixed annual interest rate of 6 percent Loan B: 10-year loan with a fixed annual interest rate of 4.5 percent Loan C: 15-year loan with a fixed annual interest rate of 5 percent 3. How much of the total $4,424,000.00 offer will be financed? 4. Which loan will have the lowest monthly payment? 5. Which loan will have the lowest total payback amount? Instructions Financing and Investing Corporate Valuation Annuities

Please help with question # 6. Thanks

please help with questions 1-6. thanks

Answer 1

A. В C Е F G 94 /Y 1 PV PMT FV Competing manufacturing 300000 95 company offer 15 12% 2300000 23773115.64 96 97 98 /Y PV PMT FV McCormick & Company 4424000 99 offer 12% 15 0 24215054.92 100 Based on the FV, the offer of McCormick & Company should be accepted. Amount financed 101 Principal Percent down 102 4424000 3096800 30% 103 104 /Y 4. Loan PV РMT 20 105 269993.14 Loan A 6.00% 3096800 391369.94 3096800 3096800 106 Loan B 4.50% 10 5.00% 107 Loan C 15 298352.80 Loan A has the lowest monthly payment 108 Total Paid 109 Y Loan PV PMT 110 Loan A 3096800 20 6.00% 269993.14 5399862.72 4.50% 3096800 111 Loan B 10 391369.94 3913699.35 112 Loan C 15 5.00% 3096800 298352.80 4475291.94 Loan B has the lowest total payback amount. 113 114 6 Loan B 115 The loan with the lowest total payback amount should be accepted as overall, it will have lowest interest to be paid. 116 םם

Formulas:

A B C E F G 94 1 Y РМТ PV FV Competing manufacturing =FV(C95,B95,-E95,-D95) 0.12 2300000 |300000 95 company offer 15 96 97 98 2 I/Y N PV PMT FV McCormick & Company =FV(C99,B99-E99,-D99) 99 offer 4424000 0.12 15 100 Based on the FV, the offer of McC 101 3 Principal Percent down Amount financed -8102* (1-C102) 102 4424000 0.3 103 104 4 I/Y PMT Loan PV |=PMT(D105,C105,-E105) |=PMT(D106,C106,-E106) -PMT(D107,C107,-E107) 105 0.06 -D102 Loan A 20 0.045 -E105 106 Loan B 10 107 0.05 Loan C 15 -E106 Loan A has the lowest monthly p 108 109 5 Total Paid -F110*C110 -F111*C111 I/Y Loan PV PMT |=PMT(D110,C110,-E110) -PMT(D111,C111,-E111) |=PMT(D112,C112,-E1 12) 0.06 110 Loan A -D102 20 0.045 0.05 -E110 -E111 111 Loan B 10 112 F112 *C112 Loan C 15 113 Loan B has the lowest total payba 114 6 Loan B 115 The loan with the lowest total payback amount should be accepted as overall, it will have lowest interest to be 116 paid. 2נם