The ₹48,000 Admission Fee and the 2% Per Month Offer
The Sen household lives in a small town. The father, 44, drives an auto-rickshaw and earns about ₹22,000 a month; the mother, 39, tailors at home and earns ₹5,500. Their son is in Class XII and their daughter, 19, has a nursing diploma seat with an admission fee of ₹48,000 due in three weeks. Rent is ₹7,000; a two-wheeler EMI is ₹2,400 with eight months left at 22% annual interest; school fees are ₹2,000; groceries ₹8,000; the father's diabetes medicines ₹1,200; transport and other costs ₹3,500. They have ₹9,000 in a savings account and ₹15,000 in a recurring deposit that matures in five months. A neighbour offers ₹50,000 at '2% per month'. A 15 g gold chain could be pledged with a bank at 11% annual interest or sold outright for about ₹95,000. The daughter could take a part-time job worth ₹3,000 a month, but it would cut her study time.
1. Apply the management process (planning, organizing, implementing, controlling) to the admission-fee decision. Show the affordable gap and at least two options.
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Planning. The goal is specific: pay ₹48,000 within three weeks without disrupting essential spending. Monthly income is ₹27,500; listed expenses are ₹24,100 (7,000 + 2,400 + 2,000 + 8,000 + 1,200 + 3,500), leaving a surplus of about ₹3,400. Available cash is ₹9,000. The recurring deposit of ₹15,000 is not available for five months unless they borrow against it. Immediate resources are therefore about ₹9,000 plus one month's surplus, roughly ₹12,400. The gap is about ₹35,600.
Organizing. List the sources: savings, monthly surplus, college installment option, gold loan, sale of gold, part-time work, reduced spending, informal loan. Check which are liquid within three weeks.
Implementing. A sensible order is: ask the college whether the fee can be paid in two installments; use ₹9,000 savings; use the monthly surplus; if a bridge is still needed, take the lowest-cost formal loan for the shortest period. The neighbour's 2% per month is 24% a year and should be a last resort.
Controlling. Record the amount borrowed, the interest rate, the repayment date and the source of repayment. Review the budget weekly until the fee is paid. The model answer should not simply say 'take a loan'; it must show that the family cannot cover ₹48,000 from current liquid resources and must choose among constrained options.
2. Compare the neighbour's loan, the bank gold loan, and selling the gold chain. Include the annualized interest cost and one non-financial factor for each.
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Assume the family needs about ₹35,000 for six months.
- Neighbour's loan at 2% per month: this is 24% per year. Simple interest for six months on ₹35,000 is about ₹4,200, but informal loans often carry compounding, no proper receipt and social pressure. Non-financial factor: the family may be unable to negotiate a delay without damaging a neighbourhood relationship.
- Bank gold loan at 11% per year: simple interest for six months on ₹35,000 is about ₹1,925, plus any processing fee. The family keeps ownership of the chain, but if repayment fails the bank can auction it. Non-financial factor: pledging requires safe custody of the receipt and a clear repayment plan.
- Selling the chain for about ₹95,000: there is no interest cost and the fee is covered, but the family loses an asset that can be pledged in a future emergency. Non-financial factor: the chain may have emotional or security value, and selling converts a liquidable asset into spent cash.
The lowest direct interest cost is the gold loan. Selling avoids debt but sacrifices a reserve asset. The neighbour's loan is the most expensive and least regulated. A reasoned answer may choose the gold loan for the gap if the family can repay within six months, or choose a college installment plan plus the gold loan for a smaller amount. It should reject the 24% informal loan unless no formal option exists.
3. State two control measures and one opportunity cost of the daughter taking the part-time job.
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Two control measures:
- Monthly cash-flow review against actual figures. Compare planned and actual spending on groceries, transport and medicines. If groceries regularly exceed ₹8,000, the surplus estimate is wrong and the loan repayment plan must be revised.
- Earmark the EMI closure date. In eight months the ₹2,400 EMI ends. That amount should be redirected immediately to repay the admission loan and then to an emergency fund, not absorbed into routine spending.
A third possible control is to obtain a written receipt for every loan payment and to set a fixed repayment date.
Opportunity cost of the daughter's part-time job: the ₹3,000 a month is earned at the cost of study and clinical practice time in a demanding nursing diploma. If reduced study time leads to a failed subject or a weaker clinical record, the long-term cost may exceed the short-term income. The opportunity cost is not only money; it is also rest, health and future earning capacity. A reasoned answer should weigh the ₹3,000 against the risk to the qualification that is the reason for the loan in the first place.