# Evaluation of employee group housing offer

A Pharma company has recently recruited 4 scientists at an average age of 27 and is looking to develop quite a few pharmacological formulations. With a view to retain them the company proposes to offer a housing scheme to them on the following terms and conditions:

- The number of beneficiaries will be four in number
- The total cost of purchasing apartments will be Rs.1 crore
- PNBHFL offers an 18 year term @ 9.00% interest and HDFC offers 15 years term @ 8% interest.
- The company will pay the housing finance company on an EAV basis.
- A Down payment of 5% of the cost of the apartment has to be made and recoverable from the employee in 24 installments. The upfront payment will be made by the company.
- In case of availing the loan from HDFC, 50% of the EAV will be recovered from the employee on a monthly basis and in case of availing the loan from PNBHFL 45% will be recovered from the employee. The option of choosing the service rests with the company only.
- Assume a 6% accrual on the deductions taken from the employee under either option with quarterly compounding.
- Assume that employee deductions happen on the first day of the month and housing loan payments made by the company happens on the last day of the year.
- The housing loan is offered on a fixed interest basis and EAV will not change.
- Assume the individual apartments are of equal value.

**You are called upon to do the following:**- Calculate the two EAV options and choose the best one.
- Calculate monthly deduction of each employee under the two options
- Calculate the accumulated maturity value per year inclusive of compounded quarterly interest.
- Calculate the EAV differential borne by the company a. on annual basis b. over the tenor.

**Hints for developing the solution**A. Develop loan amortization tables for 1 person for both loan options B. Deduct the appropriate employer contribution in annual value- (eav )and divide by 12 to get monthly emi C. Calculate effective rate of interest for quarterly compounding of emi deducted D. Calculate annual realization of investment (multiplied) by 4 and compare with best option EAVAdd a comment

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