Log in
Accounting
1
answer
0
watching
80
views

SHOW ALL STEPS. NEED TO DOUBLE CHECK WORK

Complete the following two retirement scenarios as instructed.(Hint: draw a time line and see what you know for each time periodand for which time period you know enough to calculate the presentvalue or the future value of the cash flows.)

1) Tom is planning for a very early retirement. Tom would liketo retire at age 40 and have enough money saved to be able to draw$250,000 per year for the next 40 years. Based on family history,he thinks it is likely that he will live to age 80. He plans tosave by making 15 equal annual installments (from age 25 to age 40)into a fairly risky investment fund that he expects will earn 12%per year. He will leave the money in this fund until it iscompleted depleted when he is 80 years old. To make his planwork

a. How much money must Tom accumulate byretirement?

b. How much money will Tom draw out during hisretirement?

c. How much must Tom pay into the investment each year for thefirst 15 years?

d. Compare the out-of-pocket savings to the investment value atthe end of the 15 years to the withdrawals made during Tom’sretirement. Comment below on how these numbers could beso different, if they are. Use full sentences,please.

2) Tom’s sister, Janet, is also planning for retirement;however, she started saving for her retirement earlier than Tomsince she expects that she will need more money for retirementbased on the fact that women in their family usually live longerthan men. She also is planning for a very early retirement. Janetwould like to retire at age 40 and have enough money saved to beable to draw $250,000 per year for the next 50 years. Based onfamily history, she thinks it is likely that she will live to age90. She plans to save by making 20 equal annual installments (fromage 20 to age 40) into a fairly risky investment fund that sheexpects will earn 12% per year. She will leave the money in thisfund until it is completed depleted when she is 90 years old. Tomake her plan work

a. How much money must Janet accumulate byretirement?

b. How much money will Janet draw out during herretirement?

c. How much must Janet pay into the investment each year for thefirst 20 years?

d. Compare the out-of-pocket savings to the investment value atthe end of the 20 years to the withdrawals made during Janet’sretirement. Comment below on how these numbers could beso different, if they are. Use full sentences,please.

Comment also on how different Janet’s numbers are fromTom’s, if they are. Again, please use full sentences. Makesure to clearly give all reasons thatthey are different if they are.

Watch
1
answer
0
watching
80
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Beverley Smith
Beverley SmithLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

1) (a) HOw much is a $20,000 investment worth at the end of 8years if it accumulates at 7%?

(b) Tom wants to retire at the end of this year (2016). His lifeexpectancy is 30 years from his retirement. Tom has come to you,his CPA, to learn how much he should deposit on December 31, 2016to be able to withdraw $50,000 at the end of each year for the next30 years, assuming the amount on deposit will earn 6% interestannualy.

(c) Judy Thomas has a $1,500 overdue debt for medical books andsupplies at Joe's Bookstore. She has only $800 in her checkingaccount and doesn't want her parents to know about this debt. Joe'stells her that she may settle the account in one of two ways sinceshe can't pay it all now:

1. Pay $600 now and $900 when she completes her residency, threeyears from today.

2. Pay $1,500 one year after completion of residency, threeyears from today.

Assuming that the cost of money is the only factor in Judy'sdecisions and that the cost of money to her is 6%, whichalternative should she choose? Your answer must be supported withcalculations.

***Please show work so I know how to find the answers.

________1. Randy Hill wants to retire in 10 years with $500,000.He can earn 6% per year on his investments. Compute how much heneeds to deposit each year to reach his goal. ________2. Joe Morriswants to start a savings fund from which his grandson couldwithdraw $3,000 a year for 10 years. The fund would earn 5%interest. Compute the amount Joe would have to deposit now to reachhis goal. ________3. Your rich aunt has offered to finance fiveyears of college for you. The annual cost will be $30,000 and theinterest rate is 5%. Compute how much money your aunt must give younow to finance the five years of college. ________4. Assume yourfather is 55 and wants to retire at age 65 with $300,000 in aretirement fund. The interest rate is 8%. Compute how much he mustdeposit at age 55 to accumulate the $300,000. ________ 5. Assumeyou want to have $25,000 for a down payment for a house in fiveyears. Compute the amount you would need to deposit today. Yourmoney will earn 5 percent. ________ 6. Jeff Renfro is planning togo to graduate school (Ph.D) in a program of study that will takesix years. Jeff wants to have $35,000 available each year forvarious school and living expenses. He can earn 5 percent on hismoney. Compute how much he must deposit at the start of his studiesto be able to withdraw $35,000 a year for six years. ________7.Angie Baden deposits $10,000 a year into her retirement account.These funds will earn 8 percent over the 10 years until herretirement. Compute what the value of her retirement account willbe when she retires. ________8. Assume you borrow $80,000 with a 7percent interest rate, to be repaid in seven equal yearly payments.Compute the amount of each payment.

1) Joe's Hardware is adding a new product line that will requirean investment of $1,476,000. Managers estimate that this investmentwill have a 10-year life and generate net cash inflows of $300,000the first year, $290,000 the second year, and $240,000 each yearthereafter for eight years. Assume the project has no residualvalue.

a. Compute the ROR for the investment (round answer to 2 decimalplaces)

-----------------------------------------------------------------------------------------------------

2) White, Co., is considering acquiring a manufacturing plant.The purchase price is $1,100,000. The owners believe the plant willgenerate net cash inflows of $314,000 annually. It will have to bereplaced in seven years.

a. Use the payback method to determine whether White shouldpurchase this plant. (round answer to 1 decimal place) The paybackperiod for the plant is ____years.

-----------------------------------------------------------------------------------------------------------

3) Assume you want to retire early at age 52. You plan to saveusing one of the following two strategies: (1) save $2700 a year inan IRA beginning when you are 27 and ending when you are 52 (25years) or (2) wait until you are 37 to start saving and then save$4,500 per year for the next 15 years. Assume you will earn thehistoric stock market average of 10% per year.

a) How much out of pocket cash will you invest under the twooptions?

b) How much savings will you have accumulated at age 52 underthe two options?

c) explain results

d) If you were to let the savings continue to grow for 10 moreyears (with no further out of pocket investments), what would theinvestments be worth when you are age 62?

-------------------------------------------------------------------------------------------------------------------

4) Your best friend just received a gift of $9000 from hisfavorite aunt. He wants to save the money to use as "starter" moneyafter college. He can invest it (1) risk- free at 8%, (2) taking onmoderate risk at 12% or (3) taking on high risk at 16%

Begin by computing the future value of the investment under theeach of the three options. (round the investments worth to thenearest whole dollar)

--------------------------------------------------------------------------------------

5) Janice wants to take the next six years off work to travelaround the world. She estimates her annual cash needs at $33,000(if she needs more, she will work odd jobs) . Janice believes shecan invest her savings at 10% until she depletes her funds.

a)How much money does Janice need now to fund her travels? Withthe 10% interest rate, Janet needs: $______

b) After speaking with a number of banks, Janice learns she'llonly be able to invest her funds at 4%. How much does she need nowto fund her travels?

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in