Question

Imagine you work for a real estate developer. Three years ago, the developer spent $50 million on a plot of land, which is now valued at $60 million. However, the building project has been held up in red tape until now, and the company has paid $3 million in interest on its initial loans. Three years ago they thought they could build 100 condos for a total of $30 million and sell them for a total of $100 million. Now, with changes in the condo market and in the costs of materials, labour, and capital, they expect to be able to build the condos for $40 million and sell them for $95 million. It's your job to say whether they should proceed with building the condos.

Imagine you work for a mining corporation, and that you have been asked for a price estimate on the equipment needed for a new mining project. You find out that the company spent $98,000 on equipment for a similar project in 2010.

Suppose you take out a loan for $8000. The interest rate is 5% compounded annually. (For all answers, round to the nearest cent.)

Problem 1 Imagine you work for a real estate developer. Three years ago, the developer spent $50 million on a plot of land, which is now valued at $60 million. However,the building project has been held up in red tape until now, and the company has paid $3 million in interest on its initial loans. Three years ago they thought they could build 100 condos for a total of $30 million and sell them for a total of $100 million Now, with changes in the condo market and in the costs of materials, labour, and capital, they expect to be able to build the condos for $40 million and sell them for $95 million. It's your job to say whether they should proceed with building the condos. a) Which of the above mentioned numbers are relevant to the decision of whether to proceed with building the condos? Which ones are irrelevant? Explain why. b) Should the company continue with building the condos? Justify your answer using the relevant numbers. Assume that the time it will take to build and sell the condos is short enough that you don't have to worry about interest. Problem 2 Imagine you work for a mining corporation, and that you have been asked for a price estimate on the equipment needed for a new mining project. You find out that the company spent $98,000 on equipment for a similar project in 2010. a) Statistics Canada publishes price indices for various commodities. Find the table named "Machinery and equipment price index, by commodity" (table 18-10-0057-01 from Statistics Canada). What was the index value for Logging, mining and construction machinery and equipment" in Q1 of 2010? What was the same value in Q4 of 2018 (the most recent data available)? b) Using these index values and the costs from 2010, estimate the cost of the new project. (Round to the nearest hundred dollars.) Problem3 Suppose you take out a loan for $8000. The interest rate is 5% compounded annually. (For all answers. round to the nearest cent a) Set up the compound interest formula and then solve for the amount of the loan after 5 years assuming you don't make any intermediate payments. b) Suppose you want to make regular fixed payments to pay off the loan. Calculate the amount you would have to pay each year to pay off the loan in five years c) Now assume that the loan compounds quarterly instead of annually (that is, four times per year). What quarterly payment is required to pay off the loan by the end of five years?

Answer 1

hey there. You have asked 3 questions in one go. I can answer your third question

loan amount (principal/base amount) = 8000

rate of interest = 5 % p.a.

formula for compound interest is: A = P(1+r/n)t

where A= Amount

P= Principal

r= rate of interest

n= number of times interest is compounded per year

t= total time in years

If loan amount is not paid in initially, if this is deferred payment loan, after 5 years loan amount will be $11754.62

If loan amount is divided into annual installments, amount is $10018.26 and annual installment is $2003.65

If loan amount is paid and computed every quarter for 5 years, amount is $9785.07 and quarterly installment is $489.25