Capital Deployment Task Case Solution
Capital Deployment Task
This task basically relates to the comparison of the different options of capital deployment. The two scenarios which we are comparing in this case for both the cases are to compare buying a home VS leasing a home. A range of assumptions have also been made in the analysis of both the cases under both the scenarios which are stated below:
Assumptions
The discount rate for valuing different options has been assumed to be 10% for both the cases.
The monthly stock prices are assumed to reflect the true prices of each stock and the returns generated on the basis of these prices have been converted into annualized returns.
The mortgage payments are assumed to take place at the start of the period.
In the leasing scenario for both the homes, it is assumed that the investor follows a buy and hold policy for both the stocks.
Now, the analysis of both the cases (home 1 and home 2) has been performed below:
Home 1 Case
First of all, the mortgage loan amortization schedule has been generated on the information provided. 80% of the home cost would be financed through the loan. The annual payments would be $12080 per year. Moreover, two scenarios have been constructed which are the buying home scenario and leasing home scenario. The relevant cash flows in the first scenario are the home cost, home inflows from sale, annual mortgage payments, insurance and taxes..............
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