case analysis–time value of money

case analysis–time value of money
Do caluculations and complete a financial analysis of the buy-versus-rent decision and do the scenario analysis, for different situations. What decision shuold Young make? prepafe a 2 pages analysis. Do not use any internet sources
In May 2013, Rebecca Young completed her MBA and moved to Toronto for a new job in investment
banking. There, she rented a spacious, two-bedroom condominium for $3,000 per month, which included
parking but not utilities or cable television- In July 2014, the virtually identical unit next door became
available for sale with an asking price of $620,000, and Young believed she could purchase it for
$600,000- She realized she was facing the classic buy-versus-rent decision- It was time for her to apply
some of the analytical tools she had acquired in business school – including “time value of money”
concepts – to her personal life.

While Young really liked the condominium unit she was renting, as well as the condominium building
itself, she felt that it would be inadequate for her long-term needs, as she planned to move to a house or
even to a larger penthouse condominium within five to 10 years – even sooner if her job continued to
work out well.

Friends and family had given Young a variety of mixed opinions concerning the buy-versus-rent debate,
ranging from “you’re throwing your money away on rent” to “it’s better to keep things as cheap and
flexible as possible until you are ready to settle in for good.” She realized that both sides presented good
arguments, but she wanted to analyze the buy-versus-rent decision from a quantitative point of view in
order to provide some context for the qualitative considerations that would ultimately be a major part of
her decision.

FINANCIAL DETAILS

If Young purchased the new condominium, she would pay monthly condo fees of $1,055 per month, plus
property taxes of $300 per month on the unit- Unlike when renting, she would also be responsible for
repairs and general maintenance, which she estimated would average $600 per year-

If she decided to purchase the new unit, Young intended to provide a cash down payment of 20 per cent
of the purchase price- There was also a local deed-transfer tax of approximately 1.5 per cent of the
purchase price, and a provincial deed-transfer tax of 1.5 per cent, both due on the purchase date. (For