ITech Geek's CEO, Dudley Dawson, is thinking about refinancing his home. He wants to use NPV to make this personal capital budgeting decision. Currently, Mr. Dawson has an underlying mortgage with a balance of $2.3M and a monthly payment of $14,988.76. He can refinance the $2.3M balance for 30-years at 4%, compounded monthly. The total cost to originate the new loan is 3.5% of the outstanding balance of the old loan. Mr. Dawson assumes that he will be in the property for another 10 years. Using NPV explain whether Mr. Dawson should refinance his underlying mortgage or forgo the refinance and remain with his current financing.

Answer rating: 100% (QA)

The net present value NPV is a financial metric used frequently in capital budgeting decisions It is a measure of the present value of an investments ... View the full answer