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28 Nov 2019

Mori is planning to retire in 40 years and would like to plan for his retirement by depositing $2000 in a saving account at the local bank, earning him 3% per year compounded annually. He thinks his new job will allow him to deposit $500 at the end of the first year, and he plans to keep increasing the deposited amount by $20 every year. How much will he have collected for his retirement at the end of the 40th year?

$20,792

$37,600

$54,986

$67,825

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7 Oct 2019
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SHOW ALL STEPS. NEED TO DOUBLE CHECK WORK

Complete the following two retirement scenarios as instructed.(Hint: draw a time line and see what you know for each time periodand for which time period you know enough to calculate the presentvalue or the future value of the cash flows.)

1) Tom is planning for a very early retirement. Tom would liketo retire at age 40 and have enough money saved to be able to draw$250,000 per year for the next 40 years. Based on family history,he thinks it is likely that he will live to age 80. He plans tosave by making 15 equal annual installments (from age 25 to age 40)into a fairly risky investment fund that he expects will earn 12%per year. He will leave the money in this fund until it iscompleted depleted when he is 80 years old. To make his planwork

a. How much money must Tom accumulate byretirement?

b. How much money will Tom draw out during hisretirement?

c. How much must Tom pay into the investment each year for thefirst 15 years?

d. Compare the out-of-pocket savings to the investment value atthe end of the 15 years to the withdrawals made during Tom’sretirement. Comment below on how these numbers could beso different, if they are. Use full sentences,please.

2) Tom’s sister, Janet, is also planning for retirement;however, she started saving for her retirement earlier than Tomsince she expects that she will need more money for retirementbased on the fact that women in their family usually live longerthan men. She also is planning for a very early retirement. Janetwould like to retire at age 40 and have enough money saved to beable to draw $250,000 per year for the next 50 years. Based onfamily history, she thinks it is likely that she will live to age90. She plans to save by making 20 equal annual installments (fromage 20 to age 40) into a fairly risky investment fund that sheexpects will earn 12% per year. She will leave the money in thisfund until it is completed depleted when she is 90 years old. Tomake her plan work

a. How much money must Janet accumulate byretirement?

b. How much money will Janet draw out during herretirement?

c. How much must Janet pay into the investment each year for thefirst 20 years?

d. Compare the out-of-pocket savings to the investment value atthe end of the 20 years to the withdrawals made during Janet’sretirement. Comment below on how these numbers could beso different, if they are. Use full sentences,please.

Comment also on how different Janet’s numbers are fromTom’s, if they are. Again, please use full sentences. Makesure to clearly give all reasons thatthey are different if they are.

THE MBA DECISION Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben's annual salary at East Coast Yachts is $53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,500 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $100,000 per year, with a $15,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $71,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $3,500. Ben thinks that after graduation from Mount Perry, he will receive an offer of $88,000 per year, with a $12,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 29 percent. Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.5 percent. Assume all salaries are paid at the end of each year. 1. How does Ben's age affect his decision to get an MBA? 2. What other, perhaps nonquantifiable factors, affect Ben's decision to get an MBA? 3. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint? 4. In choosing between the two schools, Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement? 5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position? Assume his tax rate after graduating from Wilton University will be 31 percent regardless of his income level. 6. Suppose that instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision to get an MBA?

Numerous frauds in the early 2000s spurred Sarbanes-Oxleylegislation (SOX). SOX changed the way businesses looked at andreported their internal control structure. Internal controls areneeded both to prevent and deter fraud as well as errors.Segregation of duties is the most commonly considered internalcontrol.

Ben's Barn is a successful, locally owned, organic farmer.Ben and his wife sell produce at local farmer's markets. The farmis the primary source of income for Ben and his family. Ben hasbeen in business for 10 years, and has developed a reputation forhigh quality produce. Ben's extensive greenhouses allow him to growvarieties not native to the local area, which commanded higherprices in the local markets.

This summer, the weather was perfect and Ben had a bumpercrop. Ben and his wife could not keep up, and made the decision tohire a part-time temporary employee for the firsttime. Ben took great pride in his produce, and made thedecision to send the employee to the farmer's market so that hecould tend to the harvest and provide the care he thought itneeded. Ben and the employee would load the produce inthe company's truck, and take it the farmer's market three (3)times per week. Once set up, Ben would spend some time talking withthe other vendors and regular customers, and then return to thefarm. The employee was responsible for cash sales to the marketcustomers. Some inventory was sold by the item, whileother inventory was sold by weight. They set up a small scale atthe booth each day to weigh produce. A portable cash register wasalso taken to register sales and provide receipts to customers. Theregister kept a duplicate copy of the receipts forreconciliation. The register also featured subtotalingfeatures which would add the sales for the day. At the end of theday, Ben would return to help load the remaining produce and closethe produce stand for the day. He would change out the registertape, but like any good farmer, often left the tapes in a folder inhis truck until he could remember to take them into thehouse/office. At the end of each week, Ben's wife made atrip to the bank to deposit cash receipts and to get the properchange/denominations to start the new week's cash box. Since herhusband was so busy, she wasn't able to catch up with him to getthe register receipts to match to deposits, so she just counted thecash and deposited it.

For his records, Ben recorded every detail of the harvest.He wanted to know how to plan for the next season. He recordedquantities and weights of produce harvested by variety. He trackedthe harvest daily, but never reconciled it to sales at the marketand produce that was returned from the market.

Harvest continued to be exceptionally busy. As a result, Bencould barely keep up with writing his employee a weekly payrollcheck. When the bank statements came at the end of the month, hewas too busy for paperwork and failed to reconcile statements untilthe following month. After all, he and his wife had run thebusiness for 10 years this way, he would catch up on paperwork whenit slowed down.

At the end of the season, Ben finally slowed down enough tocatch up on paperwork. He began to review the bank statements, andnoticed that deposits were less than they had been in prior years,when harvests had not been as good. Ben was certain that he hadsold more inventory. In fact, he knew he had because half-waythrough the season he had added an additional day of sales (a 4thmarket) each week. Ben had helped load the truck at the end of eachday, and only a small amount ever returned to the farm. What couldhave happened? Did the employee have something to do with this?Would Ben ever know how much he lost?

For this exercise, your job is to identify controls and putcontrols in place to prevent the loss of a company's liquid assets:cash & inventory.

IF the losses did occur, identify control mechanisms that couldbe put in place to timely detect the losses. Why do you believethose mechanisms would have been effective?

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