I.

ROBLEM RECOGNITION

Engr. Tywin Lannister is about to retire and is planning to build a beach rest house in
Cebu. To start his project, he searched and found a 250 sqm. beach resort lot for sale
at Alcoy, Cebu at a price of 475,000 pesos. The problem is, he only has 150,000 pesos
to initially pay the lot. He has the choice of paying the rest of the amount through a loan
from BDO or through an instalment plan.

II. DEVELOPMENT OF FEASIBLE ALTERNATIVE

He wants to evaluate which of the following alternative is more preferable to pay the
rest of the amount :

 A loan from BDO with the following information:

o Property Price: 475,000 pesos
o Down payment: -₱150,000
o Loan Amount = Property amount-Down payment
= ( ₱475,000-₱150,000)

=₱325,000
o Loan Tenure: 3 years (Maximum loan tenure is 3 years)
o Interest rate: 15%
 An instalment plan with the following information:
o Property Price: 475,000 pesos
o Down payment: 142 ,500 pesos
( Engr. Targaryen can pay ₱150,000)
o Loan Amount = Property amount-Down payment
= ( ₱475,000-₱150,000)

=₱325,000
o Interest rate: 7.75%
o Payable for: 10 years
III. DEVELOPMENT OF OUTCOMES AND CASH FLOWS OF EACH ALTERNATIVE

 Annuity when Engr. Targaryen Loans from BDO

𝑖(1 + 𝑖)𝑁
𝐴 = 𝑃[ ]
(1 + 𝑖)𝑁 − 1

. 15(1 + .15)3
𝐴 = ₱325,000 [ ]
(1 + .15)3 − 1
𝐴 = ₱142,342.51
 Annuity when Engr. Targaryen get an instalment plan

𝑖(1 + 𝑖)𝑁
𝐴 = 𝑃[ ]
(1 + 𝑖)𝑁 − 1

0.0775(1 + 0.0775)10
𝐴 = ₱325,000 [ ]
(1 + 0.0775)10
𝐴 = ₱25,187.50
IV. SELECTION OF CRITERION

Engr. Targaryen has to pay the annual amount of ₱142,342.51 for 3 years if he

will choose to loan from BDO while he has to pay the annual amount of ₱25,187.50 if
he chooses to have the instalment plan. The selection of the alternative will be based on
the total amount Engr. Targaryen has to pay at the end of the loan tenure and the
instalment plan.

V. ANALYSIS AND COMPARISON OF THE ALTERNATIVES

In the first alternative, which is loaning from BDO, the annual amount to pay is
₱142,342.51 for 3 years.

₱142,342.51
( ) (3 𝑦𝑒𝑎𝑟𝑠)
𝑦𝑒𝑎𝑟
= ₱427,027.53

Engr. Targaryen will pay a total amount of ₱427,027.53 at the end of the loan
tenure.

In the second alternative, which is having an instalment plan, the annual amount
to pay is ₱24,375.00 for 10 years.

₱25,187.50
( ) (10 𝑦𝑒𝑎𝑟𝑠)
𝑦𝑒𝑎𝑟
= ₱251,875.00

Engr. Targaryen will pay a total amount of ₱251,875.00 at the end of the
instalment plan.
 VI. SELECTION OF THE PREFFERED ALTERNATIVE

Based on the calculations, it is obvious that the most preferred alternative

is for Engr. Targaryen to have an instalment plan to pay the rest of the amount. He will
only pay a total amount of 251,857 pesos in having the instalment plan rather than
paying 427,027.53 when loaning from BDO. Although it takes only 3 years to pay the
total amount when loaning from BDO, the annual amount to pay is rather very high
which might become a burden to Engr. Targaryen. One factor for the very high annuity
is because of the high amount of interest rate offered by BDO