ENGINEERING ECONOMY DIGITAL ACCESS
ENGINEERING ECONOMY DIGITAL ACCESS
8th Edition
ISBN: 2810022611683
Author: Blank
Publisher: MCG
Question
Book Icon
Chapter 4, Problem 2CS
To determine

Total worth of plan B.

Expert Solution & Answer
Check Mark

Explanation of Solution

Time period is 15 years. Down payment (DP) is 10%. Fixed rate (i) is 5%. Price of house (Pr) is $330,000. Fee (UF) is $3,000.

Total payment (TP) can be calculated as follows:

Total payment=(Pr×DP)+UF=(330,000×0.1)+3,000=33,000+3,000=36,000

Total payment is $36,000.

Loan amount (LM) can be calculated as follows:

Loan payment=Pr(Pr×DP)=330,000(330,000×0.1)=330,00033,000=297,000

Loan payment is $297,000.

Tax and insurance (TI) is $500 per month. Interest rate per month (im) is 0.4167% (512). Time period (n) is 180 (15×12) months. Equivalent annual value of monthly payment can be calculated as follows:

A=LM(im(1+im)n(1+im)n1)+TI=297,000(0.004167(1+0.004167)180(1+0.004167)1801)+500=297,000(0.004167(2.1138302)2.1138302)+500=297,000(0.00880831.1138302)+500=297,000(0.00790081)+500=2,346.54+500=2,846.54

Equivalent monthly loan repayment is $2,847 per month.

The remaining money after monthly payment and down payment (ia) is deducted, earns 0.5% interest rate per month. Available amount (AV) is $40,000. Time period (n1) is 120 (10×12) months.  Future worth of available amount (FA) can be calculated as follows:

FA=(AVTP)(1+ia)n1=(40,00036,000)(1+0.005)120=(4,000)(1.819397)=7,277.59

Future value of remaining available amount is $7,278.

The person can afford the monthly payment (MP) of $2,850. The future value of remaining monthly available amount (FM) can be calculated as follows:

FM=(MPA)(1+ia)n1=(2,8502,847)(1+0.005)120=(3)(1.819397)=5.46

The future value of remaining monthly available amount is $5.

Future value of loan balance (FB) can be calculated as follows:

FB=LM(1+im)n1A((1+im)n1im)=297,000(1+0.004167)1202,847((1+0.004167)12010.004167)=297,000(1.647075)2,847(1.64707510.004167)=297,000(1.647075)2,847(0.6470750.004167)=297,000(1.647075)2,847(155.285577)=489,181.275442,098.038=47,083.24

Future value of loan balance is $47,083.

Selling price (SP) is $231,000. Increase in the future value of house (FH) can be calculated as follows:

FH=SPFB=231,00047,083=183,917

Future value of house is $183,917.

Total future worth (TFW) of plan B can be calculated as follows:

TFW=FA+FM+FH=7,278+5+183,917=191,200

Total future worth of plan B is $191,200.

The value of FA for plan A is 7,278. The value of FM for plan A is $116,354. The value of Loan balance for plan A is 243,386.

Total future worth (TFW) of plan A can be calculated as follows:

TFW=FA+FM+FH=7,278+116,354+(231,000243,386)=111,246

Total future worth of plan A is $111,246. Total future worth of plan B is greater than plan A. Thus, select plan B.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Key shortcomings of the Human Capital approach to measuring the monetary value of benefits of new treatments are that it Will generate lower benefits for male lives on average Will generate higher benefits for female lives on average Will tend to OVERVALUE improvements in quality of life Will tend to UNDERVALUE improved survival for people out of labour force
One of the key concepts in economics that underpins the necessity of making tough choices and confronting difficult tradeoffs through some form of collective decision-making is called Production Consumption Exchange Equity Scarcity
Allocative efficiency WITHIN the health care sector refers to What mix of nonmedical and medical goods and services should be produced in the macro-economy What mix of medical goods and services should be produced in the health economy What specific health care resources should be used to produce the chosen medical goods and services Who should receive the medical goods and services that are produced

Chapter 4 Solutions

ENGINEERING ECONOMY DIGITAL ACCESS

Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education