Finance Project on Marks and Spencer
Added on 2020-06-05
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Finance Project
Table of Contents1.1 Saving and investment in Lifetime ISA.................................................................................31.2 Maximum loan amount..........................................................................................................31.3 Value of annuity.....................................................................................................................41.4 Value of saving......................................................................................................................51.5 Advantage and disadvantage of interest only mortgage........................................................51.6 Risks that Mark and Spencer may face..................................................................................5QUESTION 2..................................................................................................................................52.1 Difference between real and nominal value...........................................................................52.2 (A). Calculation of nominal value of the house and mortgage with interpretation...............6(B). Calculation of real value of the house and mortgage with interpretation.............................62.3 Short-term and long-term assets and liabilities......................................................................62.4 Net worth, gearing and current assets ratio............................................................................72.5 Reasons..................................................................................................................................8PART B...........................................................................................................................................8REFERENCES..............................................................................................................................10
1.1 Saving and investment in Lifetime ISA (Source: New Lifetime ISA, 2016)New Individual Savings Account, known as Lifetime ISA aims to help people to savelong-term life. Government adds a bonus & in this, savings can be withdrawn without penaltyafter the age of 60 years to support retirement or buy a first home. In this fund, Mark cancontribute with maximum limit of £4000 per annum and at the end of the tax year, governmentadds a bonus which grow fund. Savings of the fund comprises tax-free interest, 25% bonus andinvestment growth which Mark may use to purchase their first home (New Lifetime ISA, 2016).At the time of retirement, all the remaining amount of savings can be withdraw without any taxwhen Mark crosses the age of 60 years. Thus, the plan will be definitely so helpful for the Markbeing a first-time buyer. 1.2 Maximum loan amount While raising money through loan to purchase a new home, Mark and Spencer will needto satisfy the loan conditions. Before granting loan, bank investigates the affordability ofcustomer to judge that whether he or she can afford to make payment of the loan obligationstimely or not. Affordability test is performed to examine the income and its relevant essential
spending so as to determine the net availability of money that Mark and Spencer can utilize topay-off their mortgage. Broker performed affordability test and found that Mark & Spencercould pay £900 per month and the loan period is 25-year at 4% APR. Calculation of maximum amount that can be borrow Rate=4%/numberofmonth∈ayear¿4%/12=0.33%Numberofperiodofpayment=25years∗12months¿300monthsMaximumaffordablepayment=GBP900/monthBorrowingamount=Presentvalue(0.33%,300,900)¿£170,507.23It means that Mark and Spencer would be able to borrow £170,000 by paying monthlypayment worth £900 to the mortgage and can use it to purchase own home. 1.3 Value of annuity Mark and Spencer require a jointly lump sum of £18,500 to cover the deposit and otherrelevant cost to buy a sort of home they want. Although Spencer has a saving of £9,000 which isexpected to grow to £9,250 half-share whereas Mark just can afford £250 each month and obtainreturn of 2% per annum through an Ordinary Cash ISA. The amount of these savings after 3 yearcan be computed as follows:FV of annuity = C*[(1+i)n-1/i]Interest rate per annum = 2%/12 = = £250*[(1+0.17%)-1/0.17%] = £250*37.09
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