{"id":47382,"date":"2022-03-31T15:08:21","date_gmt":"2022-03-31T15:08:21","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/5a-developing-financial-insights-questions-1-you-just-turned-35-and\/"},"modified":"2022-03-31T15:08:21","modified_gmt":"2022-03-31T15:08:21","slug":"5a-developing-financial-insights-questions-1-you-just-turned-35-and","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/5a-developing-financial-insights-questions-1-you-just-turned-35-and\/","title":{"rendered":"5a) developing financial insights questions 1) you just turned 35 and"},"content":{"rendered":"
\n

5a) Developing Financial Insights<\/span>
Questions<\/span>
1) You just turned 35 and have been saving for an around-the-world vacation. You want to<\/span>
take the trip to celebrate your 40th birthday. You have set aside, as of today, $15,000 for<\/span>
such a trip. You expect the trip will cost $25,000. The financial instruments you have<\/span>
invested $15,000 in have been earning, on average, about 8%. (You may ignore income<\/span>
taxes.)<\/span>
a) Will you have enough money in that vacation account on your 40th birthday to take<\/span>
the trip? What will be the Surplus, or shortfall, in that account when you turn 40?<\/span>
(Hint: Case Exhibit 1 will be useful in answering this question.)<\/span>
b) If you had to, you could further fund the trip by making, starting today, five annual<\/span>
$500 contributions to the account. If you adhere to such a plan, how much will be in<\/span>
your account on your 40th birthday? (Hint: Case Exhibit 3 and the answer to part (a)<\/span>
above, will both be useful in answering this question.) 2) Your company has been offered a contract for the development and delivery of a solarpowered military troop transport vehicle. The request for the proposal provides all the<\/span>
necessary technical specifications and it also stipulates that two working, economically<\/span>
feasible prototypes must be delivered in four years, at which time you will receive our<\/span>
only customer payment \u2013 a single final payment of $50 million. Assume a reinvestment<\/span>
interest rate of 18% for all the monies received over the next four years. (You may ignore<\/span>
income taxes.)<\/span>
a) What lump-sum dollar amount would you be willing to accept today instead of the<\/span>
$50 million in four years? (Hint: Case Exibit 2 will be useful in answering this<\/span>
question.)<\/span>
b) Alternatively, what four year receipts, starting a year from now, might you be willing<\/span>
to accept? (Hint: Case Exhibit 4 and the answer to part (a) above will both be useful<\/span>
in answering this question.)<\/span>
3) The aged but centrally located golf course you manage does not have an in-ground<\/span>
automated water sprinkling system. Instead, to properly water the course, sprinklers and<\/span>
hoses must be repeatedly set, moved, and put away by some of the grounds crew \u2013 a<\/span>
tedious and laborious task. If over the next 12 years you project annual savings of about<\/span>
$40,000 from having an automated system, what is the maximum price you would be<\/span>
willing to pay today for an installed, automated golf course sprinkler system? (Assume<\/span>
and interest rate of 6% and you may ignore income taxes.)<\/span>
a) Redo your calculation using a 10-year time period and $48,000 in annual savings.<\/span>
b) Redo you initial calculation one more time using $50,000 in annual savings for the<\/span>
first six years and $30,000 in annual savings for the next six years.<\/span>
4) The cafeteria you operate has a regular clientele for all three meals, seven days a week.<\/span>
You want to expand your product line beyond what you are currently able to offer. To do<\/span>
so requires the purchase of some additional specialty equipment costing $45,000, but you project a restaurant increase in sales (after deducting the cost of sales) of about $8,000<\/span>
per year for each of the next eight years with this new equipment. Assuming a required<\/span>
rate of return (i.e., a hurdle rate) of 8%, should you pursue this opportunity? Why or why<\/span>
not? Do the analysis under two conditions:<\/span>
a) You are part of an income-tax-exempt enterprise.<\/span>
b) The enterprise you are part of is subject to a 40% corporate income tax rate and the<\/span>
straight-line, depreciable life of the equipment you are contemplating purchasing is<\/span>
five years.<\/span>
5) You are contemplating the purchase of a one-half interest in a corporate airplane to<\/span>
facilitate the expansion of your business into two new geographic areas. The acquisition<\/span>
would eliminate about $220,000 in estimates annual expenditures for commercial flights,<\/span>
mileage reimbursements rental cars, and hotels for each of the next 10 years. The total<\/span>
purchase price for the \u00bd share is $6 million, plus associated annual operating costs of<\/span>
$100,000. Assume the plane can be fully depreciated, on a straight line basis, for tax<\/span>
purposes over 10 years. The company\u2019s weighted average cost of capital (WACC) is 8%,<\/span>
and its corporate tax rate is 40%. Does this endeavor present a positive or negative net<\/span>
present value (NPV)? If positive, how much value is being created for the company<\/span>
through the purchase of this asset? If negative, what additional annual cash flows are<\/span>
needed for the NPV to equal zero? To what phenomena might those additional positive<\/span>
cash flows be ascribable?<\/span>
6) The final tally is in: This year\u2019s operating cost were down $100,000, a decrease directly<\/span>
attributable to the $520,000 investment in the automated materials handling system put in<\/span>
place at the beginning of the year. If this level of annual savings continues for five more<\/span>
years, resulting in six total years of annual savings, what compounded annual rate of return will that represent? If these annual savings continue for nine more years, what<\/span>
compounded annual rate of return will that represent? (You may ignore income taxes.)<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

5a) Developing Financial InsightsQuestions1) You just turned 35 and have been saving for an around-the-world vacation. You want totake the trip to celebrate your 40th birthday. You have set aside, as of today, $15,000 forsuch a trip. You expect the trip will cost $25,000. The financial instruments you haveinvested $15,000 in have been earning, on […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-47382","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/47382","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=47382"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/47382\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=47382"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=47382"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=47382"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}