Sinking Fund Vs. Borrowing Vs. Insurance       

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Sinking Fund vs. Borrowing vs. Insurance

Number of Years to Associate's Death If you borrow the money or use an Installment Buyout (10% interest)* If you pay cash** From Sinking Fund If you use Permanent Life Insurance (Approximations)
1 $ 1.10 $ 1.00 2 cents
2 $ 1.10 $ 1.00 4 cents
3 $ 1.10 $ 1.00 6 cents
4 $ 1.10 $ 1.00 8 cents
5 $ 1.10 $ 1.00 10 cents
6 $ 1.10 $ 1.00 12 cents
7 $ 1.10 $ 1.00 14 cents
8 $ 1.10 $ 1.00 16 cents
9 $ 1.10 $ 1.00 18 cents
10 $ 1.10 $ 1.00 20cents
15 $ 1.10 $ 1.00 30 cents
20 $ 1.10 $ 1.00 40 cents

 

HOW DO YOU PROPOSE TO BUY OUT YOUR BUSINESS ASSOCIATE?

* Assumes the loan is repaid in one year.  Amount would be greater with longer repayment period.  Interest rates will vary of course; 10% is used only as an example.

** This assumes the availability of cash when it is needed.

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Copyright 2001 Kaplan Management & Insurance Services
Last modified: June 13, 2012