Saudi Electronic University Purchase Evaluation Time Value of Money Presentation

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Economics

Saudi electronic university

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Purchase Evaluation

Management is considering acquiring new office space by purchasing Zone A property which would cost $5,000,000 to buy today.

It has been estimated they could sell the Zone A property in 8 years for $8,500,000.

They will have to take a loan and pay an interest rate of 7.5% on that loan.

  1. What is the Present Value of the sale proceeds from the Zone A property?
  2. Should the fund purchase the Zone A property and if so, why?

The health fund realize they could rent out part of the one A property that is surplus to requirements and receive rent of $350,000 per year.

  1. What is the Present Value of the sale proceeds from the Zone A property with rent?
  2. Should the fund purchase the Zone A property with rent and if so why?

They receive a new offer of another building, the Zone B property but with slightly different conditions.

  • It costs $500,000 less to purchase
  • The rent to be received would be $150,000 less per year, however, the interest charged on the loan would be 1% less per year.

The Zone B property could be sold in 6.5 years, but they would receive $1,000,000 less than the Zone A property

  1. What is the Present Value of the sale proceeds from the Zone B property?
  2. Which is more attractive, the Zone A property (with rent) or the Zone B property?

The health fund has surplus funds available of $3,000,000 and can invest the funds earning 8% per annum

  1. How long would it take for them to have enough money to purchase outright
  1. The Zone A Property
  2. The Zone B Property

Purchase Evaluation:

Management is considering acquiring new office space by purchasing Zone A property which would cost $5,000,000 to buy today.

It has been estimated they could sell the Zone A property in 8 years for $8,500,000.

They will have to take a loan and pay an interest rate of 7.5% on that loan.

  1. What is the Present Value of the sale proceeds from the Zone A property?
  2. Should the fund purchase the Zone A property and if so, why?

The health fund realize they could rent out part of the one A property that is surplus to requirements and receive rent of $350,000 per year.

  1. What is the Present Value of the sale proceeds from the Zone A property with rent?
  2. Should the fund purchase the Zone A property with rent and if so why?

They receive a new offer of another building, the Zone B property but with slightly different conditions.

  • It costs $500,000 less to purchase
  • The rent to be received would be $150,000 less per year, however, the interest charged on the loan would be 1% less per year.

The Zone B property could be sold in 6.5 years, but they would receive $1,000,000 less than the Zone A property

  1. What is the Present Value of the sale proceeds from the Zone B property?
  2. Which is more attractive, the Zone A property (with rent) or the Zone B property?

The health fund has surplus funds available of $3,000,000 and can invest the funds earning 8% per annum

  1. How long would it take for them to have enough money to purchase outright
  2. The Zone A Property
  3. The Zone B Property

The health fund finds it only has $2,75,000 to invest but can utilize an alternative investment and earn 9.5% per annum

  1. How long would it take for them to have money to purchase outright
  2. The Zone A Property
  3. The Zone B Property

You must show all your calculations f. Your calculations for this assignment must be as a separate Excel file.

Prepare a PowerPoint presentation outlining all these scenarios and be sure to highlight the importance of the time value of money as one of the considerations.

Make a recommendation as to which scenario you feel is the best option and outline your reasoning for that determination. Also, explain if you consider there may be other factors that should be considered.

The PowerPoint presentation must meet the following structural requirements. In addition to the slide presentation, submit the Excel spreadsheet with your calculations.

Your presentation should meet the following structural requirements:

  • Organized, using professional themes and transitions.
  • It should consist of nine slides, not including the title and reference slides.
  • Each slide must provide detailed speaker’s notes, with a minimum of 100 words per slide. Notes must draw from and cite relevant reference materials.
  • Provide support for your statements with in-text citations from a minimum of six scholarly articles. Two of these sources may be from the class readings, textbook, or lectures, but the other four must be external. The Saudi Digital Library is a good place to find these references.
  • Follow APA 7th edition and Saudi Electronic University writing standards.
  • You are strongly encouraged to submit all assignments to the Turnitin Originality Check prior to submitting them to your instructor for grading. If you are unsure how to submit an assignment to the Originality Check tool, review the Turnitin Originality Check Student Guide.

The health fund finds it only has $2,75,000 to invest but can utilize an alternative investment and earn 9.5% per annum

  1. How long would it take for them to have money to purchase outright
  2. The Zone A Property
  3. The Zone B Property

You must show all your calculations for credit. Your calculations for this assignment must be submitted as a separate Excel file.

Prepare a PowerPoint presentation outlining all these scenarios and be sure to highlight the importance of the time value of money as one of the considerations.

Make a recommendation as to which scenario you feel is the best option and outline your reasoning for that determination. Also, explain if you consider there may be other factors that should be considered.

The PowerPoint presentation must meet the following structural requirements. In addition to the slide presentation, submit the Excel spreadsheet with your calculations.

Your presentation should meet the following structural requirements:

  • Organized, using professional themes and transitions.
  • It should consist of nine slides, not including the title and reference slides.
  • Each slide must provide detailed speaker’s notes, with a minimum of 100 words per slide. Notes must draw from and cite relevant reference materials.
  • Provide support for your statements with in-text citations from a minimum of six scholarly articles.
  • Follow APA 7th edition and .

Recommended

El–Awady, N. (2017). Call for an industrial–grade overhaul. Nature, 549(7673), 575-577.

Chapter 4 PowerPoint slides – Time Value Analysis

Healthcare Financial Management Association. (2020). The importance of financial flexibility in today's dynamic healthcare environment. hfm Winter 2020(10), pp. 18-22.

Khan, M. A. (2020). Riba in Islamic finance: Some fresh insights. Journal of Economic and Social Thought, 7(1), 25-40.

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Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.

PURCHASE EVALUATION

ACQUIRING PROPERTY


The health fund should purchase the zone A property because the present value is greater than
the future value.



The discounting technique of present value of lumpsum is used to find the present value of the
zone A property which was the most suitable method.



After the period of 8 years , the fund will have a surplus if they sell the zone A as the present
value is less than the future value.



Inflation and economic factors should be considered so as to maximize the value of money when
purchasing the zone (Hasibuan & Muda, 2017).



The loan amortization schedule is significant in purchasing this zone to show how the loan is to
be repaid.

LEASING PROPERTY
• The health fund should purchase the zone A property with rent. This is because they will receive a
constant amount of 2,050,056 every year which gives them higher returns in the period of 8 years
compared to the amount they would receive if they sold the property after 8 years.

• The discounting method of present value of an annuity was the most suitable method of finding
the present value.
• According to El- Awady (2017), a shilling today is worth more than a shilling tomorrow and this
explains the concept of time value of money where investors prefer to receive a payment today than
the same amount tomorrow.

• Purchasing the Zone, A property with rent is suitable scenario to choose as the they will receive a
fixed amount in the present which considers the concept of time value for money.

INVESTMENT ALTERNATIVE
• Acquiring the Zone B property is the most suitable and attractive because it will generate higher
returns in a shorter period of time.
• The returns of purchasing the zone A property with rent are slightly lower that the zone B property
returns. However, it is not the best investment alternative as the returns will be acquire in a longer
period.
• The interest rate of the zone B property is lower com...


Anonymous
Excellent! Definitely coming back for more study materials.

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