Financial Management – Group Project
This project contains two parts – A and B
Group Project: Part A: Car Loan 50 Marks
Shaikha is your sister. She has done so well in FIN 2003 and obtained an A+ grade. She wants to celebrate her success by buying a nice car. Shaikha has set her eyes on the latest model of various cars like Bugatti la Voiture Noire, BMW X7, BMW X6, GLE Mercedes-Benz, Porsche 91, Lexus lc 500, Range Rover Velar, Bentley Bentayga and Mercedes-Benz G-Class. However, she does not have enough money for the car and will have to borrow additional funds from the bank for her chosen car. However, Shaikha has 20% deposit for car price in her with EmiratesNBD High Saver Savings Account .
Please use the souqalmal https://www.souqalmal.com/ae website and pick any bank and banking loan that you feel best suits Shaikha’s interests. Be mindful, there are different loan products for expatriates and for Emiratis and general personal loans, auto loans, conventional loans and Sharia-compliant loans. Some are by their nature cheaper than others. Check the interest rates, early settlement penalties, salary transfer requirements, loan arrangement fees, minimum qualifying salary. You need to pick a car for shaikha to buy, check the price of a brand new car and start working on the following questions.
In a paragraph, justify why you have chosen the loan that you have chosen. – refer to the below car loan guide
Required
How much will Shaikha need to borrow in order to buy the car?
Amortize the loan if annual payments are made for a period of 5-years.
Change the tenor period to 60 months (5 –Years) and generate the monthly spreadsheet. Clue: Divide the annual repayment amount above in the answer to question (b) by 12 to obtain the monthly payments and generate the spreadsheet.
Do you think Shaikha should borrow on a fixed interest rate or variable (floating) interest rate across the entire loan repayment period? Why or why not?
Why is it advantageous (disadvantageous) at times to borrow on a fixed interest rate? Why is it advantageous (disadvantageous) at times to borrow on a variable (floating) interest rate?
Assuming that Shaika’s credit rating is A. What can Shaikha do to ensure that she obtains a loan from (car loan financing bank name) at a much lower interest rate than provided in the market?
Part A: Car Loan example
Refer to the above case – assume that Shaikha is going to buy a car priced at AED 40,000,000 and offered to take a car loan from ADCB at 4% for 5 years.
How much will Shaikha need to borrow in order to buy the car?
Amortize the loan if annual payments are made for a period of 5-years. [Excel Calculation Below]
First you require to determine the annual payment using the formulae below:
CF = (AED32,000,000 x 0.04) / [1 – 1 / 1.04)5]
= AED7,188,067.63
Note: Please follow the Video to learn how to insert formula in cells and create spread sheets. Also you may revert to unit 6 – loan amortization chapter.
In Excel, if for example, the cell where there is Annual Payment $7,188,067.63 is cell D5, the entry in cell D5 = – PMT (D3,D4,D2). The minus sign that appears before PMT is because the annual payments are cash flows.
Group Project: Part B: House Loan (Mortgage) 50 marks
Janet Jones is your Professor of Finance and a Brazilian citizen resident in Dubai. She wants to buy a six (6) bedroomed villa in the upmarket Emirates Hills area of Dubai. The villa is priced between AED 70 Million to 100 Million. However, Professor Jones does not have enough money to pay for her desired villa and must borrow additional funds from the bank to finance her purchase Professor Jones has AED10,000,000 in her Savings Account with FAB and AED15,000,000 in her Al Hilal Bank Savings Account.
Please use the souqalmal https://www.souqalmal.com/ae website and pick any bank and banking loan that you feel best suits Professor Jones’s interests. Be mindful, there are different loan products for expatriates and for Emiratis and general personal loans, house loans, auto loans, conventional loans and Sharia-compliant loans. Some are by their nature cheaper than others. Check the interest rates, early settlement penalties, salary transfer requirements, loan arrangement fees, minimum qualifying salary and repayment holidays.
In a paragraph, you will need to justify why you have chosen the loan that you have chosen. Refer to the below mortgage loan guide
Required
How much will she need to borrow in order to buy the Emirates Hills villa?
Amortize the loan if annual payments across a 25-year period.
Do you think Professor Jones should borrow on a fixed interest rate or variable interest rate across the entire loan repayment period? Why or why not?
Why is it advantageous (disadvantageous) at times to borrow on a fixed interest rate? Why is it advantageous (disadvantageous) at times to borrow on a variable interest rate?
Assuming that Professor Jones’ credit rating is AA. What can Professor Jones do to ensure that she obtains a loan from (mortgage loan financing bank name) at a much lower interest rate than offered in the market?
