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Assume you are preparing to move into a new neighborhood

Assume you are preparing to move into a new neighborhood. You are considering renting or buying. Divide your team into two groups.

Requirements

1. Group 1 will analyze the renting option. A suitable rental is available for $ 500 per month, and you expect rent to increase by $ 50 per month per year. Prepare a schedule showing rent payments for the next 15 years. To simplify the problem, assume rent is paid annually. Using 5% as the discount rate, determine the present value of the rent payments. Round present value amounts to the nearest dollar.

2. Group 2 will analyze the buying option. A suitable purchase will require financing $ 105,876 at 5%. Annual payments for 15 years will be $ 10,200 ( annual payments assumed to simplify the problem). Calculate the present value of the payments. Additionally, using Excel with appropriate formulas, prepare a payment schedule with the following columns ( year 1 is completed as an example):

3. After each group has prepared its schedule, meet as a full team to discuss the analyses. What is the total cash paid out for each option? What is the present value of the cash paid out for each option? Explain the implications of the previous two answers. Are there other factors that should be considered before deciding to rent orbuy?

Requirements

1. Group 1 will analyze the renting option. A suitable rental is available for $ 500 per month, and you expect rent to increase by $ 50 per month per year. Prepare a schedule showing rent payments for the next 15 years. To simplify the problem, assume rent is paid annually. Using 5% as the discount rate, determine the present value of the rent payments. Round present value amounts to the nearest dollar.

2. Group 2 will analyze the buying option. A suitable purchase will require financing $ 105,876 at 5%. Annual payments for 15 years will be $ 10,200 ( annual payments assumed to simplify the problem). Calculate the present value of the payments. Additionally, using Excel with appropriate formulas, prepare a payment schedule with the following columns ( year 1 is completed as an example):

3. After each group has prepared its schedule, meet as a full team to discuss the analyses. What is the total cash paid out for each option? What is the present value of the cash paid out for each option? Explain the implications of the previous two answers. Are there other factors that should be considered before deciding to rent orbuy?

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