Accounting Assignment Help
BUSI
320 Comprehensive Problem 32018 Summer
Use what you have learned about the time value of
money to analyze each of the following decisions:
Decision
#1: Which set of Cash Flows is worth
more now?
Assume
that your grandmother wants to give you generous gift. She wants you to choose which one of the
following sets of cash flows you would like to receive:
Option
A: Receive a one-time gift of $7500today.
Option B: Receive a $1000 gift each year for the next
10 years. The first $1000 would be
received 1 year from
today.
Option
C: Receive a one-time gift of $14,000 10
years from today.
Compute
the Present Value of each of these options if you expect the interest rate to
be 3% annually for the next 10 years.
Which of these options does financial theory suggest you should choose?
Compute
the Present Value of each of these options if you expect the interest rate to
be7% annually for the next 10 years.
Which of these options does financial theory suggest you should choose?
Compute
the Present Value of each of these options if you expect to be able to earn 10%
annually for the next 10 years. Which of
these options does financial theory suggest you should choose?
Decision
#2: Planning for Retirement
Lukeand Olivia are 22, newly married, and ready to
embark on the journey of life. They
both plan to retire 45 years from today.
Because their budget seems tight right now, theyhad been thinking that they
would wait at least 10 years and then start investing $2400 per year to prepare
for retirement. Olivia just told Luke,
though, that she had heard that they would actually have more money the day they
retire if they put $2400per year away for the next 10 years - and then simply
let that money sit for the next 35 years without any additional payments–then they
would have MORE when they retired than if they waited 10 years to start investing
for retirement and then made yearly payments for 35 years (as they originally
planned to do).
Please
help Luke and Olivia make an informed decision:
Assume
that all payments are made at the END a year (or month), and that the rate of
return on all yearly investments will be 8.4% annually.
a) How
much money will Luke and Olivia have in 45 years if they donothing for the next
10 years, then put $2400 per year away for the remaining 35 years?
a) How
much money will Luke and Olivia have in 10 years if they put $2400 per year
away for the next 10 years?
b2) How much will that amount you just
computed grow to if it remains invested for the remaining
c)
How much money will Luke
and Oliviahave in 45 years if they put $2400 per year away for each of the next
45 years?
d)
How much money will Luke and Olivia have in 45
years if they put away $200 per MONTH
at the end of each monthfor the next 45 years?
(Remember to adjust 8.4% annual
rate to a Rate per month!)
e)
If Luke and Olivia wait
25 years (after the kids are raised!) before they put anything away for
retirement, how much will they to put away at
the end ofeach yearfor 20 years in order to have $1,000,000 saved up on the
first day of their retirement 45 years from today?
USA 
India