Compute the mortgage portion of their monthly payment.
Bob and his wife are buying a $300,000 house. They put 20% down and finance the $240,000 balance with a 30-year mortgage at 6.50% APR with monthly compounding. Compute the mortgage portion of their monthly payment.
QC expects strong growth this year (assume that it is now January 2012) and Dianne McCabe, the chief financial officer (CFO), hopes she can make a case for borrowing to finance the company’s expansion. She realizes, however, that she is likely to face stiff opposition from Quincy’s family. Quincy detested borrowing money, and his motto was, “Never go into debt and hang onto cash as long as possible—because you never know . . .” In fact, his family and employees called him chintzy Quincy. For the first half of the company’s existence, the Cynsky family owned all the company’s stock. Due to the need to finance expansion, shares have been sold during the last 30 years to individuals outside the family. By 2007, the Cynsky family’s ownership share had declined to half of all shares, and although the family has not been active in running the firm in recent years, it does insist on keeping the family traditions: avoiding debt and keeping high cash balances. To this day, QC has never owed anything beyond its accounts payable and accruals. (Accrued expenses are liabilities that have been incurred but not yet invoiced.) CFO McCabe believes that the “no debt” and “high cash” policies have hurt the owners’ profits. At each annual meeting, she has tried unsuccessfully to convince the Cynsky family to consider more aggressive financial management. She is becoming concerned that her objective financial advice is irritating the family.
McCabe decides to estimate the amount of funds QC will have to obtain in 2012. She knows that 2012 is expected to be a big year for the company, particularly as the weak economy increases the sales of fancy foods for entertaining at home. As a result, sales are predicted to increase by 25 percent, to $230 million. Due to the strong demand, the marketing vice president feels any cost increases can easily be passed on, and McCabe estimates that the cost of goods sold (mostly food ingredients) will be $180 million. Cost of goods sold does not include depreciation (estimated at $5 million), and administrative and selling expenses ($15 million). The corporate tax rate is 35 percent.