Business College

This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $125,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 7 percent interest per year. She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund.

a. If she starts making these deposits on her 36th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), she must deposit $______ annually to be able to make the desired withdrawals at retirement.
b. Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum payment on her 35th birthday to cover her retirement needs. This deposit will have to be in the amount of $_____ .
c. Suppose your friend's employer will contribute $3500 to the account every year as part of the company's profit-sharing plan. In addition, your friend expects a $175,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. She must deposit $_________ annually now to be able to make the desired withdrawals at retirement.

Answers

Answer 1

Answer:

a. $21,725.65

b. $19,385

c. 27,421.32

Explanation:

Savings = 125,000

Annuity Formula :

[tex](\frac{1}{1.07})^{30}[/tex] [  [tex]\frac{125,000}{0.07}[/tex] ( [tex]1 - \frac{1}{1.07 ^}^{20}[/tex] ) ] = [tex]\frac{A}{0.07}[/tex] ( [tex]1 - \frac{1}{0.07 ^ } ^{30}[/tex] )

Solving the equation we get,

A  = $21,725.65

Related Questions

Mark Johnson saves a fixed percentage of his salary at the end of each year. This year he saved $3,000. For each of the next 5 years, he expects his salary to increase at an 4% annual rate, and he plans to increase his savings at the same 4% rate. There will be a total of 6 investments, the initial $3,000 plus five more. If the investments earn a return of 9% per year, how much will Mark have at the end of six years?

Answers

Answer:

Mark Johnson

At the end of six years, Mark will have:

= $26,945.

Explanation:

a) Data and Calculations:

Savings for the first year = $3,000

Annual rate of salary and savings increase = 4%

Interest rate = 9%

Savings for Year 2 = $3,120 ($3,000 * 1.04)

Savings for Year 3 = $3,245 ($3,120 * 1.04)

Savings for Year 4 = $3,375 ($3,245 * 1.04)

Savings for Year 5 = $3,510 ($3,375 * 1.04)

Savings for Year 6 = $3,650 ($3,510 * 1.04)

                    Year 1       Year 2      Year 3     Year 4      Year 5     Year 6

Savings      $3,000       $3,120     $3,245    $3,375     $3,510     $3,650

FV factor      1.677           1.539        1.412        1.295       1.188         1.090

FV =            $5,031       $4,802    $4,592    $4,371       $4,170     $3,979

Total FV = $26,945

Total principal contribution = $19,900

Total interest = $7,045

Your boss, whose background is in financial planning, is concerned about the company's high weighted average cost of capital (WACC) of 29%. He has asked you to determine what combination of debt-equity financing would lower the company's WACC to 17%. If the cost of the company's equity capital is 6% and the cost of debt financing is 27%, what debt-equity mix would you recommend? The debt-equity mix should be % debt and % equity financing?​

Answers

Answer:

The debt-equity mix should be 51.38% debt, and 48.62% equity.

Explanation:

The WACC formula for this scenario is

WACC = Cost of equity x weight of equity + cost of debt x weight of debt

We define the weight of debt as X, and the weight of equity as 1-X

Now, we replace the values into the formula:

17% = 27% * X+ 6% * (1-X)

17% = 27%X + 6% - 6%X

17% - 6% = 27%X - 6%X

11% = 21%X

X = 11% / 21%

X = 51.38%

So the weight of debt is 51.38%, and the weight of equity is 1-51.38% = 48.62%

Lopes Increase the size of store and parking lot Do not increase the size of store and parking lot
Increase the size of store and parking lot Lopes = $1.0 million HomeMax = $1.5 million Lopes = $0.4 million HomeMax = $3.4 million
HomeMax Do not increase the size of store and parking lot Lopes = $3.2 million HomeMax = $0.6 million Lopes = $2.0 million HomeMax = $2.5 million


Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth-related profit. If they both agree to cooperate on a strategy that maximizes their joint profits, annual profit will grow by:______

a. $0.4 million for Lopes and by $3.4 million for HomeMax.
b. $2.0 million for Lopes and by $2.5 million for HomeMax.
c. $1.0 million for Lopes and by $1.5 million for HomeMax.
d. $3.2 million for Lopes and by $0.6 million for HomeMax.

Answers

Answer:

c. $1.0 million for Lopes and by $1.5 million for HomeMax.

Explanation:

If Lopes and HomeMax both wants to maximize their profits they should choose a strategy which is beneficial for both of them. If both choose to increase the size of store and parking lot this will bring them maximum returns according to the matrix. They will be Nash equilibrium state which is a stable state.

Other Questions
Select all the ordered pair that are solutions to the system hey....lol i need help on this 1- Enlist advantages and disadvantages of vegetative propagation.2- Define the critical stages, and enlist the critical stages of wheat. Show your work!If the length of a rectangle in terms of x is x + 2x 3, and its width is 2x2 + 3x + 5,what is the perimeter of this rectangle? Don't leave any spacesinyoursolutions.Perimeter: units Jasmine always carries cash. Her friends think she should get a credit card. Which reasons show the benefits of having a credit card?******Select all that apply.******helps save moneysafermore convenientfree to userewards programs Can you help me please here is the image Two other criteria that are required in order to be considered bachelor studies Will the 79 kg skier in the figure below slide down if f the coefficient of static friction is 0.25? 6.Qu cocin por primera vez?7.Qu coman en la casa de Marco?8. En que trabajaba Marco a los doce aos?9.Qu vestimenta utilizaba Marco en sutrabajo?10.Por qu tenia que esconder su identidad?11.Qu quera estudiar Marco?12. En dnde estudio Marco?13.Por qu Marco decidi traer comidagourmet a personas de bajos recursos?14.Qu problemas de discriminacin existenen Bolivia? David is a salesman at a Electronics and Appliances shop and receives a 10%10% commission on the sale of each refrigerator. What is the price of the refrigerator, if the commission he earned on selling it was $500$500? PLZZZ HELP These tables show equivalent ratios. The value missing in each table is replaced with X. Choose ALL tables in which 12 replaces X.(please answer)POINT:15 Theres more red umbrellas on this beach than I can possibly count! Theres one wrong how does the past impact the futureThe past impacts the present by In the text Born a Crime, Noah says, ...This shows how the past impacts him by... Priya has completed 9 exam questions this is 60% of the questions on the exam. Write an equation representing this situation. Explain the meaning of any variables you use Which is this the correct variable for the equation "____= displacement divided by time"?velocityspeedacceleration Line segment AB has endpoints A(5,8) and B (1,12). Which of the following is the approximate lenght of line segment AB? I need step by step too please!!! Your boss, whose background is in financial planning, is concerned about the company's high weighted average cost of capital (WACC) of 29%. He has asked you to determine what combination of debt-equity financing would lower the company's WACC to 17%. If the cost of the company's equity capital is 6% and the cost of debt financing is 27%, what debt-equity mix would you recommend? The debt-equity mix should be % debt and % equity financing? Federalist #10 puts a large focus on.................Bthe need for government to follow the will of the peopleThe need for government to control the people who could not becontrolledDThe need to add a Bill of Rights to the Constitutionthe danger of factionsEthe need for separating powers and having checks and balances an architect find some unlabeled dimensions on a blueprint and no skill has shown a 15 foot wall that has already been built measures 1.5 in on the drawing in your wall that has to be built measures 3 in on the drawing how long will the new wall be