Hw for 1

Fin 3322

Time Value of Money Homework

1. Your local travel agent is advertising an extravagant global vacation. The package deal requires that you pay $5,000 today, $15,000 one year from today, and a final payment of $25,000 on the day you leave two years from today. What is the cost of this vacation in today’s dollars if the discount rate is 6%?

2. The tax rates are as shown. Your firm currently has taxable income of $79,000. How much additional tax will you owe if you increase your taxable income by $30,000?

|Taxable Income |Tax Rate |

|$ 0 - 50,000 |15% |

|50,001 - 75,000 |25% |

|75,001 - 100,000 |34% |

|100,001 - 335,000 |39% |

3. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?

4. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?

5. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last penny?

6. The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30...