MANAGERIAL FINANCE

UJIAN TENGAH SEMESTER

Dosen:
Agus Fredy Maradona , PhD., CA.

CASE ANALYSIS : TIME VALUE OF MONEY

Disusun oleh:
Nama : Gede Satria Pujanggo, Pg
Kelas : MM55A
Nomor absen : 12

MAGISTER MANAJEMEN
UNIVERSITAS PENDIDIKAN NASIONAL
2020
Nama: Gede Satria Pujanggo, Pg
Kelas: MM55A
No: 12
1. Data
a. Condo fee $3,000 per month,
b. New condo price $620,000
c. New condo price with parley $600,000.
d. Estimated time stay 5 to 10 years
If Rebecca Young decided to buy new condominium:
a. New condo fees $1,055 per month
b. New condo property taxes of $300 per month
c. Repairs and general maintenance fee $600 per year
d. Cash down payment 20% of condo price
e. Local deed-transfer tax 1,5% of condo price
f. Provincial deed-transfer tax 1,5% of condo price
g. Closing fees $2,000
h. Interest rate 4% compounding for 10 years period
i. Amortize the mortgage 25 years
j. Fee of 5% of selling price to realtor if Rebecca decided to sell the condo
k. Other closing fees $2,000
2. Question
• Monthly mortgage payments
• Opportunity costs (on a monthly basis) of using the lump-sum required funds for the
condominium purchase rather than leaving those funds invested and earning the effective
monthly rate.
• What might happen if she chose to sell the condominium at a future date (in year 5 and
10) as following scenario would happened:
o The condo price remains unchanged;
o The condo price drops 10 per cent over the next two years, then increases back
to its purchase price by the end of five years, then increases by a total of 10 per
cent from the original purchase price by the end of 10 years;
o then increases by a total of 10 per cent from the original purchase price by the end
of 10 years; (c) The condo price increases annually by the annual rate of inflation
of 2 per cent per year over the next 10 years;
o The condo price increases annually by an annual rate of 5 per cent per year over
the next 10 years.
• Should she buy the condo or keep renting

3. Analysis
If Rebecca decided to purchase a new condo, fees that she would consider:
• New condo fees $1,055 per month
• New condo property taxes of $300 per month
• Repairs and general maintenance fee $600 per year or $50 a month
• DP 20% of purchasing price or $120,000
• Total 3% of taxes or $18,000
• closing fees $2,000

Scenario Analysis to complete a financial analysis of the buy-versus-rent decision, Rebecca

would have to perform the following steps:

Determine the required monthly payments

Debt owned = $600000 – DP 20%
= $480000
Annual rate 4% paid monthly, thus with principal 480,000, interst is $ 288,142. Rebecca have
to pay $ 2,560 per month.
PVA = PMT x PVIFA(i,n)
PMT = PVA/PVIFA(4%,25)
PMT = 480,000/15.6221
= $30,725.70 => $2,560 per month

If she decided to buy the condo, additional fees include $1,055, $300 for tax, $50 for repairs,
it would cost her $ 3,965. If we look at her mothly rent payment $3,000, Rebecca needs to
invest $ 965 more per month.

Monthly opportunity cost if her downpayment and closing cost (asumed include taxes),
$140,000 ($120000 + $2000 + $9000 + $9000), invested with the same interest rate the
opportunity cost in the end of 10 years period is presented below:
FV = PV x FVIF (4%,10)
FV = $140000 * 1.480244285
= $ 207234.19
Thus, $ 67,234.19 ($ 207234.19 - $140,000) is her opporunity cost by the end of 10 years
period or $560.28 per month.

Rebecca principal outstanding in year 2, 5 and 10 is following: $ 456,712; $418,102.16; and

$ $342,525.10.
Month Interest Principal Total Payment Outstanding Loan
0 $ - $ - $ - $ 480,000.00
1 $ 1,600.00 $ 933.62 $ 2,533.62 $ 479,066.38
2 $ 1,596.89 $ 936.73 $ 2,533.62 $ 478,129.65
3 $ 1,593.77 $ 939.85 $ 2,533.62 $ 477,189.80
4 $ 1,590.63 $ 942.98 $ 2,533.62 $ 476,246.82
5 $ 1,587.49 $ 946.13 $ 2,533.62 $ 475,300.69
6 $ 1,584.34 $ 949.28 $ 2,533.62 $ 474,351.41
7 $ 1,581.17 $ 952.45 $ 2,533.62 $ 473,398.96
8 $ 1,578.00 $ 955.62 $ 2,533.62 $ 472,443.34
9 $ 1,574.81 $ 958.81 $ 2,533.62 $ 471,484.54
10 $ 1,571.62 $ 962.00 $ 2,533.62 $ 470,522.54
11 $ 1,568.41 $ 965.21 $ 2,533.62 $ 469,557.33
12 $ 1,565.19 $ 968.43 $ 2,533.62 $ 468,588.90
24 $ 1,525.74 $ 1,007.88 $ 2,533.62 $ 456,712.90
60 $ 1,397.46 $ 1,136.16 $ 2,533.62 $ 418,102.16
120 $ 1,146.37 $ 1,387.24 $ 2,533.62 $ 342,525.10
Conclusion A: It would be best for Rebecca to keep renting than buy a condo at this
point. However, we should consider following scenarios that migh happen in the future
years.

II. Scenario
Scenario A
No change in Year 2 ($) Year 5 ($) Year10 ($)
price
Selling Price
600,000 600,000 600,000
Realtor Fees
(5%) 30,000 30,000 30,000
Closing Fees
2,000 2,000 2,000
Outstanding
Principal 456,713 418,102 342,525
Net
111,287 149,898 225,475

Funds at Closing
140,000 140,000 140,000
Opportunity Cost
11,424 30,331 67,234
Net FV
(40,137) (20,434) 18,241
PV of Future Net
(NPV) (37,109) (16,795) 12,323

Scenario B
Year 5 Year 10
Year 2 (-10%)
(normal) (+10%)
Selling Price 540,000 600,000
660,000
Realtor Fees (5%) 27,000 30,000
33,000
Closing Fees 2,000 2,000
2,000
Outstanding
456,713 418,102
Principal 342,525
Net 54,287 149,898
282,475

Funds at Closing 140,000 140,000

140,000
Opportunity Cost 11,424 30,331
67,234
 Net FV (97,137) (20,434)
75,241
PV of Future Net
(89,809) (16,795)
(NPV) 50,830

Scenario C

Accordance with 2% Year 2 Year 5 Year 10

inflation yoy
624,240 662,448
Selling Price 731,397
31,212 33,122
Realtor Fees (5%) 36,570
2,000 2,000
Closing Fees 2,000
Outstanding
456,713 418,102
Principal 342,525
134,315 209,224
Net 350,302

140,000 140,000
Funds at Closing 140,000
11,424 30,331
Opportunity Cost 67,234
(17,109) 38,892
Net FV 143,068
PV of Future Net
(15,818) 31,967
(NPV) 96,651

Scenario D

5% increase yoy Year 2 Year 5 Year 10

661,500 765,769
Selling Price 977,337
33,075 38,288
Realtor Fees (5%) 48,867
2,000 2,000
Closing Fees 2,000
Outstanding
456,713 418,102
Principal 342,525
169,712 307,378
Net 583,945

140,000 140,000
Funds at Closing 140,000
11,424 30,331
Opportunity Cost 67,234
 18,288 137,047
Net FV 376,711
PV of Future Net 16,908 112,643
(NPV) 254,492

Comparation between Year 2 Year 5 Year 10

scenarios ($) ($) ($)

Scenario A
(37,109) (16,795) 12,323
Scenario B
(89,809) (16,795) 50,830
Scenario C
(15,818) 31,967 96,651
Scenario D
16,908 112,643 254,492

Predict
In accordance to each scenario presented above, Rebecca should decide to keep renting the
condo if she thinking about selling it within 2 years of owning (bar the scenario D happens,
but the chance it happening is 25%) . But she has to keep her eyes on the property market as
profitable scenario (Scenario C or Scenario D) is expected to happen with 5050 probability. If
she eager to hold onto the property for 10 years period, she would be happy pocketing more
than she get in money investment (opportunity cost calculation). We can conclude that
Rebecca’s investmen in property condominium should be held for 10 years period (long term
investment).