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1. Your company currently offers a defined benefit plan using the following formula for retirement benefits at age 65: final average pay, years of service, and a 2 percent replacement income factor. There is a 2 percent actuarial reduction per year for retirement between the ages of 55 (the earliest date on which one can retire) and 65. There is no actuarial cost for the mandatory 50 percent spouse option arising from age variations between the spouses. Your CFO considers the plan too costly. You decide to keep the DBP as is for your current employees, but offer a modified DBP for new hires. The new hire plan will continue to encourage long and productive service, but will reduce the cost to the company. Briefly identify and describe three appropriate design changes you would make for the new hire plan that would best generate these results.
2. An executive of a company that offers a traditional and qualified defined benefit plan is now 65 years old and applies for retirement. His average final pay is $150,000 and his average final bonus is $75,000. The DBP uses a 2 percent income replacement factor, credits for all years of service, and allows for full retirement at age 65. The executive has 30 years of service and is fully vested. Calculate the pension he will receive from the qualified defined benefit plan.
3. Suppose two persons retire from the same company and are participants of the same DBP. Their calculated annuities are the same, but when they elected instead to receive lump sums, the amounts were different. What is the most likely reason for this difference?
If the fund earns 6% annual interest, how much money has accumulated so far?
Suppose a stock had an initial price of $54 per share, paid a dividend of $1.30 per share during the year, and had an ending share price of $64. Compute the percentage total return.
The problem refers to the bonds of The Apollo Corporation, all of which have a call feature. The call feature allows Apollo to pay off bonds anytime after the first 15 years, but requires that bondholders be compensated with an extra year's interest ..
Which of the following concerning short-term financing methods is NOTtrue?
Alumbat Health has $800,000 of debt outstanding, and it pays an interest rate of 10 percent annually on its bank loan. Alumbat's total revenues are $3,200,000; its average tax rate is 40 percent; and its total margin is 6 percent. If the company does..
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. If Schenkel has 395,000 shares out..
Eaton Electronic Company’s treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity.
Merton Enterprises pays a constant $5.00 dividend on its stock. The company will maintain this dividend for the next seven years and then cease paying dividends forever. If the required rate of return is 12 percent, what is the value of this stock?
Billy Bob bank has three assets. It has $83 million invested in consumer loans with a 3-year duration, $46 million invested in T-Bonds with a 12-year duration, and $69 million in 6-month (0.5 years) maturity T-Bills. What is the duration of the ..
If you deposit money today in an account that pays 6% annual interest, how long will it take to double your money?
NPV: Project K costs $70,000, its expected cash inflows are $13,000 per year for 12 years, and its WACC is 9%. What is the project's NPV?
Dandee Lions, Inc. has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000. How much net working capital does the firm need..
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