Homework Helper

Not Rated (0)

$17/per page/

About Homework Helper

Levels Tought:
Elementary,Middle School,High School,College,University,PHD

Expertise:
Accounting,Applied Sciences See all
Accounting,Applied Sciences,Art & Design,Chemistry,Economics,Essay writing Hide all
Teaching Since: Apr 2017
Last Sign in: 328 Weeks Ago, 2 Days Ago
Questions Answered: 3232
Tutorials Posted: 3232

Education

  • MBA,MCS,M.phil
    Devry University
    Jan-2008 - Jan-2011

  • MBA,MCS,M.Phil
    Devry University
    Feb-2000 - Jan-2004

Experience

  • Regional Manager
    Abercrombie & Fitch.
    Mar-2005 - Nov-2010

  • Regional Manager
    Abercrombie & Fitch.
    Jan-2005 - Jan-2008

Category > Business & Finance Posted 21 May 2017 My Price 12.00

Your uncle Fred just purchased a new boat. He brags to you about the low X%

Your uncle Fred just purchased a new boat. He brags to you about the low X%    
interest rate (APR, monthly compounding) he obtained from the dealer. The    
rate is even lower than the rate he could have obtained on his home equity loan    
(Y% APR, monthly compounding). But if his tax rate isZ% and the interest on    
the home equity loan is tax deductible, which loan is truly cheaper?      
                 
X% interest rate = 6.9%            
Y% equity loan rate= 7.9%            
tax rate Z = 28.0%            
                 
Solution                
Because taxes are typically paid annually, we first convert the home equity    
loan to an EAR to determine the actual amount of interest during the year.    
                 
The after tax cost of the home equity loan, which is tax-deductible is:      
                 
After-tax cost= [(1+APR/12)^12 -1]*(1-t)          
                 
After-tax cost = 5.90%            
                 
Since the dealer's boat loan is not tax-deductible, we only need to calculate the EAR    
of the loan and compare them.            
                 
Dealer's boat loan= 7.12%            
                 
The home equity loan at rate 5.90% is cheaper than the boat loan at 7.12%  
Thus Uncle Fred should choose the home equity loan

Answers

Homework Helper
Not Rated (0)
Status NEW Posted 21 May 2017 07:05 AM My Price 12.00

Hel-----------lo -----------Sir-----------/Ma-----------dam----------- T-----------han-----------k Y-----------ou -----------for----------- us-----------ing----------- ou-----------r w-----------ebs-----------ite----------- an-----------d a-----------cqu-----------isi-----------tio-----------n o-----------f m-----------y p-----------ost-----------ed -----------sol-----------uti-----------on.----------- Pl-----------eas-----------e p-----------ing----------- me----------- on----------- ch-----------at -----------I a-----------m o-----------nli-----------ne -----------or -----------inb-----------ox -----------me -----------a m-----------ess-----------age----------- I -----------wil-----------l

Not Rated(0)