Exam2 Assignment Example | Topics and Well Written Essays - 1250 words

Exam2 - Assignment Example At that time, the rent would be $ 10000 per month. The next question which arises is that, whether the entire amount of $ 4000000 would be given from internal sources of financing or an external loan should also be taken. If external loan is taken, then it would be obtained to an amount of $ 2000000 having an interest of 5% per year. If the building is constructed in 2017, then the accumulated amount of $ 4000000 can also be invested and an interest on such investment @ 3.5% would be obtained. The cost of the building would also be incrementing by 2.5% per year. Return on Investment has been calculated by taking into consideration that the interest rate on the investment of $ 4000000 is 3.5%. Question 1 Return on Investment Particulars Amount (in $) Invested Amount 4000000 Return on Investment for the year 2013 (from October to December) 35000 Return on Investment for the year 2014 140000 Return on Investment for the year 2015 140000 Return on Investment for the year 2016 140000 Tota l Return on Investment 455000 Return on Investment (in Percentage) 11.375% The return on investment is a performance measure that is used for evaluating the efficiency and accuracy of any investment (Megginson & Scott, 2008). It is an effective performance measuring tool, which helps in taking appropriate decisions by the company (Rachlin, 1997). It helps in avoiding flaws in the managerial decisions taken by any company. If the accumulated amount of $ 4000000 is invested, then an annual interest @ 2.5 percent would be earned every year till 2017. The interest earned in the 1st year is 35000 and the interest earned in next three years is $ 140000 each year. Total interest earned is $455000. Return on investment is 11.375%. Question 2 Inflation rate is described as the continuous increase in the price level of goods and services. It is calculated as the annual percentage rise. Findlay is the name of a city in Ohio, United States. The Inflation rate of United States, as projected by I nternational Monetary Fund, has been shown below: (International Monetary Fund, 2012) Within the time period of 2014 to 2018, the inflation rate as assessed by the Personal Consumption Expenditure Price Index would rise to some extent and then it would remain constant at a rate of 2 percent (CBO, 2013). Determination of the projected annual inflation rate of Ohio is also necessary. ‘The Ohio Department of Transportation’ has estimated the Inflation Rate of Ohio to be: High Most Likely Low 2013 8 % 5.7% 3% 2014 10% 5.5% 3.5% 2015 8.95% 5.9% 3.5% 2016 7.5% 4.5% 1.5% 2017 7% 4% 1% Question 3 It has been stated that the value of the building would be increasing by 2.5 percent every year starting from 2014. The increment has been shown in the following table: Particulars Amount (in $) Present value of the building 4000000 Value of the building in 2014 4100000 Value of the building in 2015 4202500 Value of the building in 2016 4307562.5 Value of the building in 2017 4415251.5 6 Net Increase 415251.56 It can be seen from the above mentioned table that the value of the building increased yearly. The value of the building in 2014 increased to $ 4100000. It increased to $ 4202500 in the year 2015. In the year 2016, the value increased to $ 4307562.5 and finally in the year 2017, the value increased to $ 415251.56. Question 4 Option 1 Paying the whole amount from the internal sources of financing