ws_07.2 - Name 1. 2. 3. 4. 5. 6. 7. 8. a. b. c. $ $ yes no...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Terms of the loan Amount of the loan Length of the loan (in years) Monthly payment Total loan payments made (monthly loan payment 3 length of loan in months) $__________ per month 3 _____ months Less: Principal amount of the loan Total interest paid over life of loan (line 2 — 3) Tax considerations: Is this an investment loan (where interest expenses can be deducted from taxes)? . . . . . . . . . . . . . . . . . . . . . . . If you answered yes, then proceed to line 6; if you answered no, then proceed to line 8 and use line 4 as the after-tax interest cost of the loan. What tax bracket are you in? Taxes saved due to interest deductions (line 4 3 tax rate, from line 6: $ 3 %) Total after-tax interest cost on the loan (line 4 2 line 7) BUY ON TIME OR PAY CASH Cost of Borrowing
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Name 1. 2. 3. 4. 5. 6. 7. 8. a. b. c. $ $ yes no ___% $ $ $ $ $ $ $ $ $ Dated Cost of Paying Cash 9.Annual interest earned on savings (annual rate of interest earned on savings 3 amount of loan: ___% 3 _________) Annual after-tax interest earnings (line 9 3 [1 2 tax rate] e.g., 1 2 28% 5 72%: $_______ 3 ___%) Total after-tax interest earnings over life of loan (line 10 3 line 1b: $_______ 3 ___ years) Net Cost of Borrowing BASIC DECISION RULE: Pay cash if line 12 is positive; borrow the money if line 12 is negative. Note: For simplicity, compounding is ignored in calculating both the cost of interest and interest earnings. 12.Difference in cost of borrowing vs. cost of paying cash (line 8 minus line 11) 10. 11....
View Full Document

This note was uploaded on 11/01/2011 for the course PERSONAL F PFP101 taught by Professor J.smith during the Fall '11 term at Lakehead.

Ask a homework question - tutors are online