Microsoft Office Tutorials and References
In Depth Information
PRACTICE EXERCISE—TED AND ALICE'S HOUSE PURCHASE DECISION
￿
Beginning-of-year Cash on Hand
This value is the End-of-year Cash on Hand from the previous
year.
￿
Ted
s Take Home Wages
This value is given for 2011. To get values for 2012 and 2013,
increase Ted
s wages by 2% each year.
￿
Alice
s Take Home Salary
This value is given for 2011. To get values for 2012 and 2013,
increase Alice
s salary by 3% each year.
￿
Total Take Home Income
The sum of Ted and Alice
s pay.
￿
Apartment Rent
The rent is copied from the Calculations section.
￿
House Payments
The house payments are also copied from the Calculations section.
￿
Real Estate Taxes and Insurance, Utilities (Apartment or House), House Repair and Maintenance
Expense, and Non-Housing Living Expenses
These values all are copied from the Constants
section.
￿
Total Expenses
This value is the sum of all the expenses listed above. Note that the house
payment is now a positive number, so you can sum it normally with the other expenses.
￿
End-of-year Cash on Hand
This value is the Beginning-of-year Cash on Hand plus the Total
Take Home Income minus the Total Expenses.
Scenario Manager Analysis
When you have completed the spreadsheet, set up Scenario Manager and create a Scenario Summary sheet.
Ted and Alice want to look at their End-of-year Cash on Hand in 2013 for renting or buying under the
following four scenarios:
￿
High occupancy and bond money available
￿
High occupancy and no bond money available
￿
Low occupancy and bond money available
￿
Low occupancy and no bond money available
If you have done your spreadsheet and Scenario Manager correctly, you should get the results shown in
Figure C-37.
FIGURE C-37
Scenario Summary results
Interpreting the Results
Based on the Scenario Summary results, what should Ted and Alice do? At first glance, it looks like the safe
decision is to stay in the apartment. Actually, their decision hinges on whether they can get the
lowerinterest mortgage from the first-time buyers
bond issue. If they can, and if occupancy levels in apartments
stay high, purchasing a house will give them about $2,500 more in savings at the end of 2013 than if they
continued renting. Some other intangible factors are that home owners do not need permission to have pets,
detached houses are quieter than apartments, and homes usually have a yard for pets and children to play in.
Also, for the purposes of this exercise, you did not consider the tax benefits of home ownership. Depending
on the amount of mortgage interest and real estate taxes Ted and Alice have to pay, they may be able to
 
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