What is the minimum accrual rate, Corporate Finance

Assignment Help:

Question:

Car Maker Ltd is a multinational. In one of the countries where it is present, current legislation makes it compulsory for companies to pay a gratuity lump sum at retirement equivalent to 150% of the monthly salary per complete year of service. For companies which have a pension scheme in place, they can deduct 100 times the monthly pension off the gratuity lump sum payment. Car Maker Ltd wants to put in place a final salary DB scheme to fund in advance this gratuity benefit

a) What is the minimum accrual rate that will ensure that Car Maker will have no liability at retirement in respect of the gratuity?

b) How will your answer to (a) above change if Car Maker Ltd defines pensionable salary as the average over the last 5 years instead of using final salary? Explain

c) On a purely cost basis, is it in the interest of Car Maker to set up a DB scheme with the minimum accrual rate to fund for the gratuity lump sum assuming that retirement age is 65 and life expectancy at retirement is 12 years? Explain

d) How would your answer to (c) above change if all employees of Car Maker Ltd were females instead of males? Explain


Related Discussions:- What is the minimum accrual rate

Calculate the repo rate, Question: (a) Distinguish, using financial ass...

Question: (a) Distinguish, using financial assets as examples, between securities quoted at par and securities quoted on a discount. (b) Calculate the value of a £50,000 Tre

Calculate the annual economic value added, Westbrook Inc. is financed with ...

Westbrook Inc. is financed with debt that costs it 5% (pre-tax)or $12.5m annually and expects to generate an EBITof $50m per year perpetually. The company is at its target debt/eq

Calculate the pv and npv, Suppose you take out a loan of $10,000, repayable...

Suppose you take out a loan of $10,000, repayable by five equal annual instalments. The interest rate is 10% per year. (a) How much do you need to repay per year to the nearest ce

Discuss assumptions underlying the diversification theory, Question: a)...

Question: a) You have just been appointed a portfolio manager of Malou investment. An investor has two assets available from which to form his desired portfolio. Asset X has a

Calculate the present value of a company''s bonds, 1. How do you calculate ...

1. How do you calculate the present value of a Company's bonds? 2. "An analysis of the magnitude and stability of cash flows comparative to fixed charges is very important in de

Amortizing a loan, Suppose you take out a loan of $10,000, repayable by fiv...

Suppose you take out a loan of $10,000, repayable by five equal annual instalments. The interest rate is 10% per year. (a) How much do you need to repay per year to the nearest ce

Explain in relation to the agency problem, "The agency theory concept was i...

"The agency theory concept was initially developed by Means and Berle (1932), who argued that due to a continuous dilution of equity ownership of large corporations, ownership and

Mergers and acquisitions had on a customers access to branc, What effect ha...

What effect have mergers and acquisitions had on a customers access to branches? A: A branch closing which has resulted from a merger need not necessarily mean a lost relations

The Cost of Equity Capital and the CAPM, Part II The cost of equity (disco...

Part II The cost of equity (discount rate) can also be determined by using the Capital Asset Pricing Model (CAPM). Calculating the cost of equity using the CAPM model is often mor

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd