Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 2, Problem 32PS
Summary Introduction
To determine: The annual level of expenditure.
Summary Introduction
To determine: The annual level of expenditure at 4% inflation rate.
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Students have asked these similar questions
You estimate that by the time you retire in 35 years, you will have accumulated savings of $3.5 million.
a. If the interest rate is 10.0% and you live 15 years after retirement, what annual level of expenditure will those savings support? (Do not round intermediate calculations. Enter your answer in whole dollars rounded to 2 decimal places.)
b. Unfortunately, inflation will eat into the value of your retirement income. Assume a 6% inflation rate and work out a spending program for your $3.5 million in retirement savings that will allow you to increase your expenditure in line with inflation. What will be your expenditure amount in real terms for each year of your retirement? (Do not round intermediate calculations. Enter your answer in whole dollars rounded to 2 decimal places.)
Can you Please Answer Part B?
You estimate that by the time you retire in 35 years, you will have accumulated savings of
$3.2 million.
a. If the interest rate is 8.0% and you live 15 years after retirement, what annual level of
expenditure will those savings support?
Note: Do not round intermediate calculations. Enter your answer in whole dollars
rounded to 2 decimal places.
b. Unfortunately, inflation will eat into the value of your retirement income. Assume a 3%
inflation rate and work out a spending program for your $3.2 million in retirement
savings that will allow you to increase your expenditure in line with inflation. What will
be your expenditure amount in real terms for each year of your retirement?
Note: Do not round intermediate calculations. Enter your answer in whole dollars
rounded to 2 decimal places.
a. Annual expenditure
b. Real annual expenditure
You are planning to save $1.5 million for retirement over the next 34 years.
(a) If you are earning interest at the rate of 7% and you live 24 years after retirement, what annual level of living
expenses will those savings support?
(b) Suppose your retirement living expenses will increase at an annual rate of 2% due to inflation. Determine the
annual spending plan for the first year of retirement in line with your inflation.
Click the icon to view the interest factors for discrete compounding when i = 2% per year.
Click the icon to view the interest factors for discrete compounding when i = 7% per year.
(a) The annual level of living expenses is $
1030
(Round to the nearest dollar.)
Chapter 2 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 8SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Discount factors If the PV of 139 is 125, what is...
Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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