f er-tax cost o debt Pers na Finance P ub Bella w r me este n bu r ne motorcycle

Question

f er-tax cost o debt Pers na Finance P ub Bella w r me este n bu r ne motorcycle She hss decided o o row he mont u pBy the S30 000 o r ose once o hu b ke She 1s m e 33% nora r come ax brac et She can enher borrow the mone.. an rterest rate cf 5% fom the motorcycle deal or a. Calculate the anertax cost ot borrowing Tom 1n motorcycle dealership b. Calculste te onerter cost of borrowing trough second mortgage on Bella's home. d. Is thara an othar conaidaaton that Bala ought to think about whan dacking which loan to take out ta pay ortemotorcy? a. Theater tax cost of borrowing romthe matorcyclodeala chlpk % (Roundtote nearest whole percentage b. The after tax cost of borrowing through a second martoagelsS·(Rcundtotode chal places.) A. Doth loans have the same rate of 33%, so Dela should chocsa the loan she lkas best O B. Bela should bby lking the desle ship kan C. Both loans have the same rate of 33%, so Bela should not take either loan. O . Hala shouldbom by taking tha sacand matgaga O A. Using tha matacycls dsakrship Ican doas put Bala at rak otlnsing har hama and mtarcycla it she is unablao maka tha laan paymants Usihg the sccond home mogagc docs put Bcla at izk oflaing her matorcycl if he is unabke bo make the marigage payments

Explanation / Answer

a) After Tax Cost of Borrowing from dealer = pretax 6.00% b) After-tax cost of borrowing through a second mortgage = ( 7% x (1-33%) 4.69% c) Borrowing from the dealer is dearer than the second mortgage. Option D is correct d) Using the second home mortgage does put Bella at risk of losing her home if she is unable to make the mortgage payments

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