FNCE320 Corporate Finance – Final Project
Dr. Yaseen S. Alhaj-Yaseen
- The final project is due April 27, 2018 by 3:00pm.
- The final project should be typed, printed and presented professionally.
- A detailed and complete analysis for the problem is required; unnecessary details may be included in the project appendix. Excel spreadsheets, if any, to be emailed to me no later than the due date.
- In a class of 25 students, the odds of having two identical projects statistically is ZERO, according to my definition. You may help each other understanding/discussing these problems, but NOT using the same numbers/assumptions.
- One piece of advice that applies for this question is TREAT EACH EVENT SEPARATELY!
Q1. Congratulation on your graduation and your new job!!! You are now 22 years old trying to plan for your retirement. You decided to start saving as soon as you receive your first paycheck at the end of this month. Your current annual salary is $38,000 and you plan to save 20% of your monthly income after tax. For the first 6 years of your career, you are not expecting any pay raise; however, an annual 1.8% (compounded annually) raise is expected until you retire at the age of 67. The following major events in your life should be considered when planning for your retirement:
- In 12 years, from today, you will buy a house for $230,000 financed at 5.5% for 30 years with 15% down payment. You will sell the house for $280,000 when you retire. (You need to create your amortization table and email it to me).
- You are expecting to inherit $100,000 in 25 years from your parents.
- You are planning on getting married by the age of 31 and having your first child at the age of 33 and your second Child at the age of 35. It is your responsibility to secure part of your children’s future as well. Thus, when they are 18 years old, they will need $35,000 (annually) for college tuition and $24,000 (annually) for their living expenses for four years while attending college. Both tuition and living expenses are due by the beginningof each year.
- Finally, your spouse does not work, but you will be filing taxes jointlyafter marriage, but as a single before that. (Use the personal income tax schedules provided below for that purpose.)
Your full retirement age is 67 and you plan to retire then. You believe that you will live an additional 20 years post-retirement and, by the time you retire, you would like to have the following:
- You want to pay yourself a monthly salary of $3,500 for 20 years.
- For guys only: you want to buy your dream car Corvette zr1 for $155,000 financed at 2.99% for 6 years.
- For girls only: you want to buy your dream around-the-world trip package to visit 29 countries for $120,000 financed at 4.5% for 6 years.
- $200,000 savings in cash for medical purposes the day you retire. You can continue earning interest on this account.
- A monthly payment for a beachfront house with a value of $450,000 financed at 6% for 20 years and 25% down payment.
Your required return/opportunity cost is 6%. You can earn 8% APR as a return on your savings before retirement but only 4% after retirement. By the time you retire at age 67, are you falling short on your retirement savings? What is your shortage or surplus?
|Taxable Income||Tax Rate|
|$0 – $9,325||10%|
|$9,326 – $37,950||$932.50 plus 15% of the amount over $9,325|
|$37,951 – $91,900||$5,226.25 plus 25% of the amount over $37,950|
|$91,901 – $191,650||$18,713.75 plus 28% of the amount over $91,900|
|$191,651 – $416,700||$46,643.75 plus 33% of the amount over $191,650|
|$416,701 – $418,400||$120,910.25 plus 35% of the amount over $416,700|
|$418,401 or more||$121,505.25 plus 39.6% of the amount over $418,400|
Married Filing Jointly
|Taxable Income||Tax Rate|
|$0 – $18,650||10%|
|$18,651 – $75,900||$1,865 plus 15% of the amount over $18,650|
|$75,901 – $153,100||$10,452.50 plus 25% of the amount over $75,900|
|$153,101 – $233,350||$29,752.50 plus 28% of the amount over $153,100|
|$233,351 – $416,700||$52,222.50 plus 33% of the amount over $233,350|
|$416,701 – $470,700||$112,728 plus 35% of the amount over $416,700|
|$470,701 or more||$131,628 plus 39.6% of the amount over $470,700|
Note: Assume that tax rates will remain constant until you retire.
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