Reference no: EM133006049
Questions -
Q1. You have 40 years left until retirement and you want to retire with $3,000,000 saved. You plan to deposit 500 dollars into the account each month beginning one month from today. You currently have $100,000 saved. Calculate the rate of return (APR) you would have to earn to reach your retirement goal.
Q2. Tom Tom Co. has been working on new technology. This new technology will be available in the near term, and the firm's CEO anticipates the first cash flow to be $500,000, received 8 years from today. Subsequent annual cash flows will grow at 2% in perpetuity. Calculate the value of the technology today if the discount rate is 10%?
Q3. You just won the Power Ball Lottery worth $50,000,000. Upon reading the fine print you learn, that you have two options:
Option A: take the cash value of $30 million today (before taxes)
Option B: The winner is guaranteed to receive 30 graduated payments over 29 years; the first payment is made today. These payments will increase by 2% per year until the final payment. The first payment, received today, equals $1,500,000.
Assuming a required rate of return of 4%, calculate the present value of option B.
Q3. A company is evaluating an expansion. This capital investment will require a cash outflow today of $12,000,000. The firm estimates that the investment will pay out a cash flow of $1,000,000 per year for the next 25 years, and then nothing after. The risk-adjusted discount rate required on this project is 9%, calculate the net present value of this investment.
Q4. Your friend is celebrating her birthday and wants to start saving for retirement. She has provided you with the following information:
Years until retirement: 30
Amount to withdraw each year in retirement: $75,000
Years to withdraw in retirement: 25
Interest rate while saving: 7%
Interest rate in retirement: 4%
Saved today: $50,000
The first deposit will be made one year from today, and the last deposit will be made on the day she retires. Her first withdrawal will not take place until one year after she retires and she plans to spend her entire nest egg. Calculate the amount she will need to have saved on the day she retires.
Q5. Your friend is celebrating her birthday and wants to start saving for retirement. She has provided you with the following information:
Years until retirement: 30
Amount to withdraw each year in retirement: $75,000
Years to withdraw in retirement: 25
Interest rate while saving: 7%
Interest rate in retirement: 4%
Saved today: $50,000
The first deposit will be made one year from today, and the last deposit will be made on the day she retires. Her first withdrawal will not take place until one year after she retires and she plans to spend her entire nest egg. Calculate the amount she will need to deposit each year in order to reach her retirement goal.
Q6. Your friend is celebrating her birthday and wants to start saving for retirement. She has provided you with the following information:
Years until retirement: 30
Amount to withdraw each year in retirement: $75,000
Years to withdraw in retirement: 25
Interest rate while saving: 87
Interest rate in retirement: 4%
Saved today: $50,000
The first deposit will be made one year from today, and the last deposit will be made on the day she retires. Her first withdrawal will not take place until one year after she retires and she plans to spend her entire nest egg.
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 deposit today to cover her retirement needs. She plans to spend what she has currently saved today on a new car. Calculate the amount she will need to deposit today to reach her retirement goal.