$1334726.6868868862005821541779953

is the value of the second option at the end of 18 years, if interest is compiled once yearly @ 8%

That is indeed the crux to any DCF question...is $2 tomorrow worth more than $1 today? Who knows?

The 30 year long bond today closed at 4.57%...might be a good place to start...

Out of all do respect for a fellow Bobblehead, you don't understand the question. I'd be getting paid these amounts in exchange for an assett today. What are the contract worth in real money today is the question. And I think we know now. If you use an interest rate more than 9% B is better, 8% or less makes A better.

$33,000 * 1.08 = $35,640
($35,640 + $33,000) * 1.08 = $74,131.2
($74,131.2 + $33,000) * 1.08 = $115,701.696
($115,701.696 + $33,000) * 1.08 = $160,597.83168
($160,597.83168 + $33,000) * 1.08 = $209,085.6582144
($209,085.6582144 + $33,000) * 1.08 = $261,452.510871552
($261,452.510871552 + $33,000) * 1.08 = $318,008.71174127616
($318,008.71174127616 + $33,000) * 1.08 = $379,089.4086805782528
($379,089.4086805782528 + $33,000) * 1.08 = $445,056.561375024513024
($445,056.561375024513024 + $33,000) * 1.08 = $516,301.08628502647406592
($516,301.08628502647406592 + $33,000) * 1.08 = $593,245.1731878285919911936
($593,245.1731878285919911936 + $33,000) * 1.08 = $676,344.787042854879350489088
($676,344.787042854879350489088 + $33,000) * 1.08 = $766,092.37000628326969852821504
($766,092.37000628326969852821504 + $33,000) * 1.08 = $863,019.7596067859312744104722432
($863,019.7596067859312744104722432 + $33,000) * 1.08 = $967,701.34037532880577636331002266
($967,701.34037532880577636331002266 + $33,000) * 1.08 = $1,080,757.4476053551102384723748245
($1,080,757.4476053551102384723748245 + $33,000) * 1.08 = $1,202,858.0434137835190575501648104
($1,202,858.0434137835190575501648104 + $33,000) * 1.08 = $1,334,726.6868868862005821541779953
$1,334,726.6868868862005821541779953


lets stop creating math problems that no one that didnt pass triginometry understand, get the old trust calculators and do the math.... you can see my math above, thats the value of the second option which would have less value at the end of its term then the first option would at the end of its term in today's money.

Well we don't know what the correct interest rate is to use, 8% is just a guess, rastakit's method is appropriate though perhaps not for this project.

So check out the effect of interest rate's on NPV's:


Interst % NPV A NPV B Difference
1 $889,834.37 $543,401.68 $346,432.69
2 $743,001.82 $498,489.04 $244,512.77
3 $628,518.97 $458,544.81 $169,974.16
4 $538,356.76 $422,948.28 $115,408.48
5 $466,614.65 $391,161.82 $75,452.84
6 $408,932.06 $362,719.16 $46,212.91
7 $362,067.39 $337,215.53 $24,851.85
8 $323,595.88 $314,299.14 $9,296.74
9 $291,692.03 $293,663.85 -$1,971.82
10 $264,972.13 $275,042.99 -$10,070.86


So you can see that NPV A is always better than NPV B as long as the interest rate is below 8% - and even if it jumps up to 9%, no big difference, but if it's 10 or above, B is much better than A

if you want to see the full math for the first option i can do it up and present it for you, but its definately worth a lot more.

option A is worth $1,080,000 with out interest. via($2,250x12)x40

add in 40 years worth of compiled interest. and obviously option A is worth more.

The better offer is the one you are getting the biggest down payment on.

Geez.

I knew I could count on your for advice. But, I though you would say the one who doesn't uncheck the sign me up for another 10 years box below the credit card field.

:1orglaugh

Dude, you know I am not much of a believer in the longevity of anything but dirt.

Thus my answer.

While I am not a math whiz, I am pretty good at finding an angle to make a buck or two and I would be asking other questions....


1.) Does the asset appreciate or depreciate? If so, by how much?

2.) Can the asset be damaged by the leasee to the point of removing all value thus making payments for 24 months (by example) and then defaulting leaving you with an asset worth $0.00 and only 24 months worth of payments.

3.) Can any outside force make this asset less valuable by signing a law or losing a judgement?

If you answered in the negative to any of these issues then I would seriously consider getting as much of your money up front and/or as fast as possible.

So...in a word.....listen to KK :)


--T

OK, I ran these two contracts using a basic amortization schedule *link to calculations at bottom* which is what is used by a lender when you purchase anything like a house or car or anything of substantial value or even when you get a loan. It shows you the principal amounts which for you would be the amount that they would be paying you for your "item". It shows what the total amount the person you're making the contract with will pay and what the breakdown is on that for total interest versus total principal.

The difference that you will be getting in the long run is quite substantial. You will get $1,080,500.00 if you go with the 40 year contract. You will only get $594,500.oo with the 18 year contract.

Now an 18 year contract consists of 216 months and if you look on the amortization of the 40 year note at the 216 month mark you will have received on this note up until that point $441,564.00. That is a difference of only $152,936.00. By this point the person that is leasing from you will have actually already paid the worth of the item that they are leasing. So, you are already $125,000 or so in the clear. If you go ahead an opt to take the contract for 40 years then everything from the 216 month point on is gravy. You are looking at an additional $486,000 in your pocket for taking the 40 year contract.

My suggestion would be, take the 40 year contract and then when you have received payment 305 which would be approximately 25 years and 4 months into the contract, take everything from payment 306 on and treat it as if you were never receiving it and put it into some strategic investments and turn the additional $486,000 into a hell of a lot more.

Basically, to put it in a nutshell, if you do the 40 year versus the 18 year you gamble on losing approximately $153,000 if the guy defaults at the 18 year mark. But you've already cleared the cost of the item you are leasing to him by $125,000. $153,000 seems like a small price to pay to more than triple that amount or with good investments the sky is the limit.

Amortization Schedule But Read the Text First

LOL, who do you think I learned alot of this stuff over the years from my dear ;)

1.) Does the asset appreciate or depreciate? If so, by how much?

It appreciates.

2.) Can the asset be damaged by the leasee to the point of removing all value thus making payments for 24 months (by example) and then defaulting leaving you with an asset worth $0.00 and only 24 months worth of payments.

Possibly. But it is covered in the contract that they can't.

3.) Can any outside force make this asset less valuable by signing a law or losing a judgement?

Unlikely.

If you answered in the negative to any of these issues then I would seriously consider getting as much of your money up front and/or as fast as possible.

Did I answer those negativelly?

Rick, if you need a couple grand a month I am sure we can work something out :)

And, I am disappointed that you are paying the winner on PayPal and not ePassporte. (KK, I can't believe you missed this one...)

But seriously folks... there are not enough facts to determine which option is best. Risk is a prime factor. If the likelihood of collection decreases over time, you get as much as you can as quickly as you can. There's more, obviously, but if you give me all the facts (by email) I will give you my humble opinion.

C

PS: Asset is one ?t?, not two dude!

Use table 6-4 Present Value of $1

http://www3.interscience.wiley.com:8...aluetables.pdf

A. 2250 x 12months
= 27,000 / year
x 11.92461
= $321.964


B. 2750 x 12months
= 33,000 / year
x 9.37189
= $309,272


I didn't read all of the answers as they seemed long and boring but you can use the above Present Value table rather than crunching the numbers thru a formula

Man, I got all the big boys out tonight. We are going to get this figured out for sure. Chris, you can bet your asset that I'm emailing you now.

Aw shucks, KK, I always thought it was the other way around :)


Thats a positive !! (as long as you are absolutely positively sure that the asset cannot depreciate)

..that they can't what? Damage the asset? Default on payment? *ALL* contracts say that....enforcing it is a-whole-nother thing. Could I recommend getting a Certificate of Deposit as collateral for the purchase price?

"possibly" is an "almost" positive.


"unlikely" is an "almost" positive.

So I guess you have no negatives....but it seems like you are selling DeBeers Diamonds, Gold Bars, or Crude Oil to be so sure of the future value of the asset....JMHO.

With more info I could give you a better answer.


--T

Check your email.

I never imagined that this thread would be one post away from a third page.

Any question always brings out the experts of GFY. Page 3!

Speak for yourself....I was going for the 20 bucks :Graucho


--T

Hahah LOL - as was I, and I was working damn hard for it all over the first two pages :)

The USDollar will crash within the next 15 years (see Post WWI germany and photos of children playing with stacks of money), so your contract is worth whatever you think you can get in the next 15 years.

Good luck.

BTW, now is the time to buy a house on a huge ass mortgage. :)

Stuff like this is why I employee a CPA and finanical advisor. Way over my head, heck I failed algebra!

do you still need to know? i haven't looked through the thread. if you do i can tell you in a second

DOH! misread the question!

The answers in this thread make me wonder if anyone understands what Visa means by 1%.

Is this for a Home or Building or is this for something on the internet?

that would be included in the required rate of return

Dont think those mofo's aint on the down payment plan for one second baby ;)

lets take A and assume annual compounding.
n=40
i=8
pmt=27000

so pv=321,964.56

monthly compounding would be 323,595.88

your numbers are wrong, the pv of a is over 300k. its pretty simple stuff.

Risk level.

Can I say it louder?

RISK LEVEL.

Will Sweet T say it with me?

risk level.

The only thing that maybe cant be hurt is dirt.


Watch the insurance clauses in your investment properties. Very closely.

My brain hurts.
At this point I simply want to see the house that is worth this much payment per month. Pictures?

Linear thought: If the question really is which is more VALUABLE then it doesn't really matter what interest you apply:

The simple answer is the more valuable is A; 2250 x 12 x 40 = 1,080,000

B; 2750 x 12 x 18 = 594,000

My friend, you are always right. I'm not sure that I like you so much. Especially since I didn't get invited to your party. :(

if you want to know what the value of the future cash flows are today then you need a discount rate...

You say an 8% interest? Does this mean that NONE of the monthly stipend is spent (All goes into the bank). Meaning the previous years stipend + interest goes into the bank and the current year's interest is calculated from the new total?

Are you looking for the value of the contracts at their closure with all interest computed or the value of each contract after 40 years with all interest computed?

Should be pretty easy to figure up in either case.

At this point we have most of it figured out. The issue is that there is an exchange of an asset for one of the two contracts. The challenge is to determine which contract has greater value by converting the contracts into today's value.