PERSONAL FINANCE
5th Edition
ISBN: 9781308498706
Author: Kapoor
Publisher: McGraw Hill
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 4FPC
Summary Introduction
Case summary:
There were times when a person gets a decent job, he sticks to that job and all his worries about retirement planning flies away because he gets regular pension from his employer and the funds accumulated by him in the social security schemes on a regular basis. The payments he receives in the form of pension are enough for him to live his post-retirement life comfortably.
M is a salesperson of a computer company and T is an accountant of a lighting manufacturer. They both have started their jobs simultaneously at the age of 25. Currently, M has started saving for his future and is investing a sum of $300 at 9% interest rate until the age of 65 but T has not started it yet and has reached the age of 35. She started to save for his future requirement and her net savings until her age of 65 stood at $553,000 which is relatively much lower than the accumulated wealth of M which stood at $14 million.
LT is the owner and president of TE Company and tells the post retirement needs and the changes in the budget of a person after his retirement. She describes that some of the expenses like clothing for work and commuting expenses may reduce and other expenses such as insurance, travel and recreation might get increased after retirement.
Character in this case: M and T.
Adequate information:
M starts the job at the age of 25.
T starts the job at the age of 35.
Monthly saving of the M is $300.
Monthly saving of the T is $300.
M accumulation is $1.4million.
T accumulation is $553,000.
To determine:
the method of the net worth
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A proxy is an authorization that doesn’t allows one shareholder to vote on behalf of another shareholder.
TRUE OR FALSE
Non-Investment-grade bonds are rated at least BBB by Standard and Poor’s.
TRUE OR FALSE
Non-Investment-grade bonds are rated at least BBB by Standard and Poor’s.
TRUE OR FALSE
Chapter 18 Solutions
PERSONAL FINANCE
Ch. 18 - Prob. 18.1PQ1Ch. 18 - Prob. 18.1PQ2Ch. 18 - Prob. 18.1PQ3Ch. 18 - Prob. 18.2PQ1Ch. 18 - Prob. 18.2PQ2Ch. 18 - Prob. 18.3PQ1Ch. 18 - Prob. 18.3PQ2Ch. 18 - Prob. 18.3PQ3Ch. 18 - Prob. 18.4PQ1Ch. 18 - Prob. 18.4PQ2
Ch. 18 - Prob. 18.5PQ1Ch. 18 - Prob. 18.5PQ2Ch. 18 - Prob. 18.5PQ3Ch. 18 - Prob. 18.5PQ4Ch. 18 - Prob. 18.6PQ1Ch. 18 - Prob. 18.6PQ2Ch. 18 - Prob. 1FPPCh. 18 - Prob. 2FPPCh. 18 - Prob. 3FPPCh. 18 - Prob. 4FPPCh. 18 - Prob. 5FPPCh. 18 - Prob. 6FPPCh. 18 - Prob. 7FPPCh. 18 - Prob. 8FPPCh. 18 - Prob. 9FPPCh. 18 - Prob. 1FPACh. 18 - Prob. 2FPACh. 18 - Prob. 3FPACh. 18 - Prob. 4FPACh. 18 - Prob. 5FPACh. 18 - Prob. 1FPCCh. 18 - Prob. 2FPCCh. 18 - Prob. 3FPCCh. 18 - Prob. 4FPCCh. 18 - Prob. 5FPCCh. 18 - Prob. 1CCCh. 18 - Prob. 2CCCh. 18 - Prob. 3CCCh. 18 - Prob. 1DSDCh. 18 - Prob. 2DSD
Knowledge Booster
Similar questions
- Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…arrow_forward7. Berkeley Farms wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost (aftertax) Weights Plan A Debt .................................. 4.0% 30% Preferred stock .................. 8.0 15 Common equity ................. 12.0 55 Plan B Debt .................................. 4.5% 40% Preferred stock .................. 8.5 15 Common equity ................. 13.0 45 Plan C Debt .................................. 5.0% 45% Preferred stock .................. 18.7 15 Common equity ................. 12.8 40 Plan D Debt .................................. 12.0% 50% Preferred stock .................. 19.2 15 Common equity ................. 14.5 35 a. Which of the four plans has the lowest weighted average cost of capital? Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand.arrow_forwardNeed use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand. Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18…arrow_forward
- Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? b. The 8.1 percent cost of…arrow_forwardDillon Enterprises has the following capDillon Enterprises has the following capital structure. Debt ........................ 40% Common equity ....... 60 The after-tax cost of debt is 6 percent, and the cost of common equity (in the form of retained earnings) is 13 percent. What is the firm’s weighted average cost of capital? a. An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the after-tax cost of debt is 7 percent, and the cost of common equity (in the form of retained earnings) is 15 percent. Recalculate the firm’s weighted average cost of capital. b. Which plan is optimal in terms of minimizing the weighted average cost of capital?arrow_forwardCompute Ke and Kn under the following circumstances: a. D1= $5, P0=$70, g=8%, F=$7 b. D1=$0.22, P0=$28, g=7%, F=2.50 c. E1 (earnings at the end of period one) = $7, payout ratio equals 40 percent, P0= $30, g=6%, F=$2,20. Note: D1 is the earnings times the payout rate. d. D0 (dividend at the beginning of the first period) = $6, growth rate for dividends and earnings (g)=7%, P0=$60, F=$3. You will need to calculate D1 (the dividend after the first period).arrow_forward
- Terrier Company is in a 45 percent tax bracket and has a bond outstanding that yields 11 percent to maturity. a. What is Terrier's after-tax cost of debt? b. Assume that the yield on the bond goes down by 1 percentage point, and due to tax reform, the corporate tax falls to 30 percent. What is Terrier's new aftertax cost of debt? c. Has the after-tax cost of debt gone up or down from part a to part b? Explain why.arrow_forwardThe Squeaks Cat Rescue, which is tax-exempt, issued debt last year at 9 percent to help finance a new animal shelter in Rocklin. a. If the rescue borrowed money this year, what would the after-tax cost of debt be, based on its cost last year and the 25 percent increase? b. If the receipts of the rescue were found to be taxable by the IRS (at a rate of 25 percent because of involvement in political activities), what would the after-tax cost of debt be?arrow_forwardNo chatgptPlease don't answer i will give unhelpful all expert giving wrong answer he is giving answer with using incorrect values.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education