Dan bought some shares company total cost years ago
$17,800 x 15% = $2,670
$2,670 - $1,875 = $795
Investment in a qualified pension:
Lump sum accumulated over 25 years:
FV = $74,829.33
After-tax amount = $74,829.33 x (1-.25) = $56,122
I/Y = 3.5%
PV = $ 11,625
3. Jose, age 25, currently saves $13500 per year in his retirement account which is expected to earn 5% return. Jose is planning to retire at 62 and needs to fund his retirement upto age, 85. He has estimated that the annualamount needed during retirement would be $47,000 in today's dollar terms. The inflation rate is expected to be 1.5%. Calculate the shortfall (if any) in his retirement account at the beginning of retirement.
No Shortfall
I/Y = 1.5%
PMT = 0
BGN MODE
FV = 0
Part B: Calculate the additional savings if shortfall. Computer PMT. Use END MODE
PV = 0
$1,371,980 - $1,324,477 = $47,503
No Shortfall
PV = $47,000
N = 62 – 25 = 37
Step 3: Compute the PV of annual requirement at 3.45% for 85 – 62 = 23 years
PMT = $81,535
PV = ? = $1,324,259 = $1,324,251???
PV = $47,000
N = 62 – 25 = 37
Step 3: Compute the PV of annual requirement at 3.4483% for 85 – 62 = 23 years
PMT = $81,535
PV = ? = $1,324,466.63 = $1,324,477
I/Y = 5%
FV = $1,371,979.88 = $1,371,980
Step 1: Compute the cumulative tax benefit of depreciation for 10 years
Yearly Deductible Depreciation = $44,5000 ÷ 10 = $4,450
PV = 0
FV = ? = $7,472.54
Tax on Gain = $4,200 x 15% = $630
Step 3: Compute Net Cash Earned (Step 1 – Step 2)
7. John made $45,000 a year and had an annual investment cost of $250 and fees to a tax preparer of $525 per year. Each year John's total deduction fell short of the miscellaneous expenditure floor of 2% of AGI. He decides to cluster two years of his tax planning expenditure by visiting his tax planner twice in one year (i.e.,February for the past year and December for the next year.) How much would be deduction due to this clustering?
$400
$10,780
Step 1: Annual cost of education when the child starts college
FV = ? = $63,663.26
Step 2: Total amount required (lump sum) at the beginning of 18th year
I/Y = 1.45%
FV = 0
I/Y = 5%
N = 15
Step 1: Annual cost of education when the child starts college
PV = $38,000
Step 2: Total amount required (lump sum) at the beginning of 18th year
BGN MODE
PV = ? = $249,245.34 = $249,245
10. Susanna a businesswoman is in 33% tax bracket. She asks her clients to bill her in February of the following year instead of December of the current year. Her billing is for $22,000 per year. Compute the cumulative tax benefit of this deferral if she can earn 6.25% return on her investment and plans to repeat this process for the next 15 years.
N = 15
I/Y = 6.25%
$52,892
After first 5 years:
FV = ? = $42,471.75
After the next 5 years:
FV = ? = $48,052.89
Remaining years (13th year):
FV = $52,891.96 = $52,892
12. Sam and Sue wants to provide full funding for their 7 year old daughter who is expected to start college when she is 18. The current annual cost of a 4 year college is $38,000 which is expected to increase by 3.5% per year. Sam and Sue expect to earn 4.5% on their investment. Calculate how much they should save by the end of every year in order to accumulate funding for 4 years of college when their daughter turns 18.
I/Y = 3.5%
PMT = 0
BGN MODE
PMT = $55,478.85
Step 3: Additional savings
END MODE
PMT = $15,803.42 = $15,803
13. Jason, age 14, was given a choice of $80,000 to be deposited in his account today orhis parents would fund 80% of lump sum cost of 4 years of college. The first year of his college cost when he turns 18 is expected to amount to exactly $30,000 a year (i.e., in future dollar terms). Which should he take given a 7% after-tax investment return in both cases? Assume that the cost of education increases by 5% per year.
Step 2: The cost of college during the 1st year is $30,000. Calculate the total cost (lump sum) of 4 years of college as follows:
BGN MODE
PV = ? = $116,677.18
Parents contribution = $116,677.18 x 80% = $93,341.74
N = 4
PMT = 0
Step 1: Annual amount she would need at the beginning of her retirement
PV = $35,000
15. Martha has estimated that she would need $35,000 per year (in today's $ terms) to live on in retirement. She will be retiring in 30 years and is funding for a 23-years retirement period. The inflation rate is expected to be 2% per year and the after-tax return on her investments is expected to be 5.5%. Calculate the lump sum amount required at the beginning of her retirement.
$1,031,578
PMT = 0
FV = ? = $63,697.66 = $63,398
FV = 0
N = 23
$14,340
Step 1: Compute the cumulative tax benefit of depreciation for 10 years
PMT = $1,402.50
PV = 0
Gain = $22,000 - $0 = $22,000
Tax on Gain = $22,000 x 15% = $3,300
Net Cash Earned = $14,340.49 = $14,340