PRINCIPLES OF TAXATION F/BUS.+INVEST.
PRINCIPLES OF TAXATION F/BUS.+INVEST.
22nd Edition
ISBN: 9781259917097
Author: Jones
Publisher: MCG
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Chapter 4, Problem 13QPD

a.

To determine

Discuss the strategic implications of the given assumption.

b.

To determine

Discuss the strategic implications of the given assumption.

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A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.) Use Time Value of Money calculations.
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Lindsay is 25 years old and has a new job in web development. Lindsay wants to make sure that they are financially sound in 30 years. So, Lindsay plans to invest the same amount into a retirement account at the end of every year for the next 30 years. Note that because Lindsay invests at the end of the year, there is no interest earned on the contribution for the year in which Lindsay contributes. (a) Construct a spreadsheet model that will calculate Lindsay's retirement savings given a fixed annual amount saved and a fixed annual interest rate of return. If Lindsay invests $13,000 at an annual return of 7%, how much will be in the retirement account (in dollars) at the end of 30 years? (Round your answer to the nearest dollar.) $  (b) Develop a two-way table for annual investment amounts of $5,000 to $20,000 in increments of $1,000 and for returns of 0% to 12% in increments of 1%. Using the table, what are the minimum annual investments Lindsay must contribute (in dollars) for…

Chapter 4 Solutions

PRINCIPLES OF TAXATION F/BUS.+INVEST.

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