Perfect Solution: Financial Planning Assignment
Financial Planning Assignment 1
Answer questions 1–5 of the Time Value of Money (TVM) Case Application in Chapter 2 of the course textbook. When completing the assignment, show all of your calculations along with explanations and provide complete and concise answers to the written portions of the assignment.
Richard e-mailed that he and Monica differed about the impact of his extra spending over the past 15 years. He calculated it at about $3,000 a year. He said the total cost of $45,000 was well within his capability to make up. Monica said the cost was much greater and asked that they compute it. They were offered an investment of $20,000 that would pay $70,000 in 20 years. They want to know if they should take it. Finally, there is an annuity that Richard could sign up for at work. It would cost $100,000 at age 65 and provide payments of $8,000 per year over his expected 17-year life span. He wants to know if it is attractive. The appropriate market rate of return on investments is 7 percent after tax.
- Calculate what the $3,000-per-year deficit, had it been invested, would have amounted to at the end of the 15-year period.
- Explain to Richard what compounding is and how it affected the cumulative amount received in question 1.
- Calculate the return on the proposed $20,000 investment and indicate the factors entering into your recommendation to accept or reject it.
- Indicate the expected return on the annuity and whether it should be accepted or rejected.
- Construct an explanation of the time value of money for the financial plan using your answers to questions 1 through 4 in this part of the financial plan to help you communicate the time value information to Richard and Monica.
Financial Planning Assignment 2
Answer questions 1–4 of the Nonfinancial Assets-Capital Expenditures Case Application and 1–4 of the Financial Investments Case Application in Chapters 8 and 9 respectively. When completing the assignment, show all of your calculations along with explanations and provide complete and concise answers to the written portions of the assignment.
NONFINANCIAL ASSETS- CAPITAL EXPENDITURES
Unlike Richard, Monica remained very concerned about their financial future. Specifically, she was fearful that the couple would nor have enough money to retire comfortably as they had expected. She asked whether she should postpone or eliminate one improvement on her house. She estimated that a new boiler with a useful life of eight years would cost $20,000 and would save $4,000 a year in heating bills. Monica wanted to know whether they should sell their home now and invest the proceeds. She estimated that marketable securities would provide a return of 5 percent after taxes. They thought the value of the house, now worth
$300,000, would increase by 6 percent a year. A rental in a comparable apartment would cost $2,200 a month. Assume for purposes of this section only that Richard and Monica’s marginal tax bracket is 30 percent and other statistics include:
- Do we know yet whether Monica’s fears about retirement are justified? Do you have any preliminary opinion about this?
- Do you think she should consider a new boiler now?
- Complete the boiler problem and give your response.
- Calculate the projected return on the house for the next year and give your full recommendation.
- Finish the non financial investments section of the plan.