3. Tiffany owns an event management business that is currently operating from her garage. She would like
Question:
3. Tiffany owns an event management business that is currently operating from her garage. She would like to transform her guest room into a home office. However, she does not have her own capital to invest and will need to raise $10,000 to renovate and refit the room. Tiffany is considering taking a loan for the required amount for her renovation. Her local bank charges 7.8% per year compounded quarterly and requires quarterly repayments. The bank offered Tiffany a one-year interest-only option with her three-year loan. This means that for the first year, every quarter Tiffany would pay only interest on the amount borrowed. Loan repayments consisting of both interest and principal would then commence in the second year continues for the third year.
(a) Make an EXCEL spreadsheet that shows the end-of-the quarter balance in Tiffany's loan account over the next three years. In addition, use your amortisation schedule to calculate the total interest and the total amount paid over the life of the loan.
(b) A wealthy family friend nicknamed Lecce had offered to help Tiffany and has made an alternative offer for her to obtain the $10,000 loan. Lecce has proposed the following loan terms over a 12-month period. He claims this is a 'cheaper and simple' with everything paid off at the end of the renovation. Lecce will give her the $10,000 at the start of the month and Tiffany will start paying $900 each month until the end of the loan period. He claims he is entitled to $800 in interest, which will be paid to him under his proposed conditions. Tiffany would like to know the interest rate Lecce is charging her and they would also like to verify the total amount of interest ($800) he claims he is entitled to.
(c) Tiffany is seeking your advice in making this financial decision. Summarise for the couple explaining your findings.
Taxation Of Individuals And Business Entities 2015
ISBN: 9780077862367
6th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver