Rock Creek Golf Club
Case 27-2: Rock Creek Golf Club
Submitted by: Adam Kessler
Submitted to: Dr. Alan Czyzewski
Submitted for: MBA 613
Submitted on: Wednesday, 4/11/12
Question 1
An amortization table has been completed regarding the potential loan that RCGC would need to obtain in order to fund the purchase of 40 gasoline-powered golf carts. RCGC would need to obtain a loan for $89,600 at an eight percent interest rate for five years with a payment due at the end of each year in order to fund the purchase. A payment in the amount of $22,441 will be due at the end of each year for five years (the duration of the loan). Total interest paid will be $22,604 over the course of the loan.
When you factor in the eight percent annual interest over the course of five years, the 40 golf carts will cost a total of $112,204 to purchase outright ($89,600 in principal and $22,604 in interest). The table listed below accurately shows how much principal and interest will be paid in each year along with the remaining balance following each payment. Table 1 | | | | Year | Payment | Principal Paid | Interest Paid | Remaining Balance | 1 | 22,441 | 15,273 | 7,168 | 74,327 | 2 | 22,441 | 16,495 | 5,946 | 57,832 | 3 | 22,441 | 17,814 | 4,627 | 40,018 | 4 | 22,441 | 19,239 | 3,201 | 20,779 | 5 | 22,441 | 20,779 | 1,662 | 0 | Sum | 112,204 | 89,600 | 22,604 | |
Question 2 The implicit rate for the lease is 3.78%. This has been determined using the “IRR” function within excel, with the cash flows of $89,600 in year zero (since RCGC will be receiving 40 golf carts valued at $2,240 each) and -$20,000 in years one through five (payment of $500 for each of the 40 golf carts each year for five years). Table 2-1 listed below uses data based on a 40 golf cart purchase. With total net cash flows equal to -$10,400. This means that RCGC is paying $10,400 above the selling price in order to lease over a five-year period. There are several reasons why the
Submitted by: Adam Kessler
Submitted to: Dr. Alan Czyzewski
Submitted for: MBA 613
Submitted on: Wednesday, 4/11/12
Question 1
An amortization table has been completed regarding the potential loan that RCGC would need to obtain in order to fund the purchase of 40 gasoline-powered golf carts. RCGC would need to obtain a loan for $89,600 at an eight percent interest rate for five years with a payment due at the end of each year in order to fund the purchase. A payment in the amount of $22,441 will be due at the end of each year for five years (the duration of the loan). Total interest paid will be $22,604 over the course of the loan.
When you factor in the eight percent annual interest over the course of five years, the 40 golf carts will cost a total of $112,204 to purchase outright ($89,600 in principal and $22,604 in interest). The table listed below accurately shows how much principal and interest will be paid in each year along with the remaining balance following each payment. Table 1 | | | | Year | Payment | Principal Paid | Interest Paid | Remaining Balance | 1 | 22,441 | 15,273 | 7,168 | 74,327 | 2 | 22,441 | 16,495 | 5,946 | 57,832 | 3 | 22,441 | 17,814 | 4,627 | 40,018 | 4 | 22,441 | 19,239 | 3,201 | 20,779 | 5 | 22,441 | 20,779 | 1,662 | 0 | Sum | 112,204 | 89,600 | 22,604 | |
Question 2 The implicit rate for the lease is 3.78%. This has been determined using the “IRR” function within excel, with the cash flows of $89,600 in year zero (since RCGC will be receiving 40 golf carts valued at $2,240 each) and -$20,000 in years one through five (payment of $500 for each of the 40 golf carts each year for five years). Table 2-1 listed below uses data based on a 40 golf cart purchase. With total net cash flows equal to -$10,400. This means that RCGC is paying $10,400 above the selling price in order to lease over a five-year period. There are several reasons why the