Case Study

1933 Words Nov 22nd, 2012 8 Pages
Engineering Economic Analysis Case Study

Case Name The Smithson’s Mortgage Case Study Teams This case is designed to be conducted by a team of students. The discussion, questioning, and resolution of differences is an important part of the learning experience. Another significant advantage is the sharing of the workload in preparing the final case study report. Knowledge Background This case draws heavily on the material presented in Chapters 2 and 3 of Principles of Engineering Economic Analysis, 4th Edition by White, Case, Pratt, and Agee, particularly Section 3.4 (Principal Amount and Interest Amount in Loan Payments). To a limited extent it draws on concepts from Chapter 4 (Measuring the Worth of Investments), Chapter 5 (Comparison of
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Undoubtedly their will be ups and downs but the long term average of 9% appears to be reasonable and stable for planning purposes. Since this

is a tax sheltered account, all investments will grow tax free until their retirement. Paul and Leslie have identified four potential mortgage options. They will make their selection from among these four based on your recommendation.

Available Mortgages
Mortgage I 30 year fixed rate @ 7.58%/yr/mo, monthly payments, minimum 5% down payment, 1 point closing costs Mortgage II 15 year fixed rate @ 7.13%/yr/mo, monthly payments, minimum 5% down payment, 1 point closing costs Mortgage III 30 year fixed rate @ 7.08%/yr/2-weeks, bi-weekly payments, minimum 5% down payment, 1 point closing costs Mortgage IV 15 year fixed rate @ 6.63%/yr/2-weeks, bi-weekly payments, minimum 5% down payment, 1 point closing costs

General Conditions Applicable to All Mortgages
( All mortgage calculations are rounded to the nearest penny on a payment by payment basis. All accumulated rounding error is compensated for with an adjustment in the final payment. “1 point” closing costs equals 1 percent of the loan value. These costs are associated with creating the loan and are due at the time the loan is originated (along with the down payment). They are not tax deductible. Paul and Leslie’s timing is such that the annual mortgage cycle will coincide with the calendar year. Tax savings are calculated

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