06
= $5,553.33 + $14,133.33 = $19,686.66
ROI = ($31,080 - $19,686.66) / $19,686.66 = 0.5787
Scenario 2: The midpoint bid
Gain from Investment = $90 x 12 + $30,000 = $31,080
Total Cost of Investment = $292,580.86, out of which $92,580.86 are owned by Mr. King and $200,000 come from bank loans
Annual cost of investment = $92,580.86 / 15 + $200,000 x 1.06 / 15 = $20,305.38
ROI = ($31,080 - $20,305.38) / $20,305.38 = 0.5306
Scenario 3: The highest bid
Gain from Investment = $90 x 12 + $30,000 = $31,080
Total Cost of Investment = $311,111.11, out of which $111,111.11 are owned by Mr. King and $200,000 come from bank loans
Annual cost of investment = $111,111.11 / 15 + $200,000 x 1.06
/ 15 = $21,540.73
ROI = ($31,080 - $21,540.73) / $21,540.73 = 0.4428
All three scenarios reveal positive values of the return on investment, which means that the purchase of medallions will generate positive cash flows. In other words, it is advisable to make...
Out of the three scenarios, the most desirable one is the first, where the bid price is the lowest and the ROI is the highest.
References:
Luo, M., April 24, 2004, Bids Exceed $300,000 in Medallion Auction, New York Times
2009, Mortgage Rates in New York Metro, Bank Rates, http://www.bankrate.com/funnel/mortgages/mortgage-results.aspx?market=2&loan=200000&perc=20&prods=&points=All" target="_blank" REL="NOFOLLOW" style="text-decoration: underline !important;">http://www.bankrate.com/funnel/mortgages/mortgage-results.aspx?market=2&loan=200000&perc=20&prods=&points=All last accessed on September 23, 2009
2009, Return on Investment -- ROI, Investopedia, http://www.investopedia.com/terms/r/returnoninvestment.asp last accessed on September 23, 2009
All values are preserved from the auction in 2004; they are not adjusted with inflation rates, but assumed to have the same values as those is 2004 due to the recent decrease in prices o=in the context of the economic crisis
http://www.bankrate.com