lkay Yaam at age of 32 has been working for a worldwide company as an engineer...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
İlkay Yaşam at age of 32 has been working for a worldwide company as an engineer with current net salary 12,500 TL. She decided to make an investment for her child's education for a 10-year time frame. In the last 8 years, she has saved a small fortune as an amount of 100,000 TL. She is little confused about type of the investment that she will make. There are two ways to invest her savings for her child's education. First way is to deposit money for Individual Pension System (IPS). IPS is a system that enables people to earn an income that can maintain their living standards in retirement periods by directing the savings they make during their active working lives to long-term investment. However, although IPS is designed for retirement (more than 10 years), İlkay is planning to use the system as 10-year time frame as a saving tool. Second way to save money for her child's education is to create deposit account in a bank for 10-year time frame. Hence, she asked a friend (who took Engineering Economy) for a help that her financial plans by developing the monthly financial plan (cash flows) with taking into account the time value of the money. Bank Deposit: Saving amount of 50,000TL will be deposited in a bank for 10-year period. Estimated MARR values for each year compounded monthly, are given in below table. Note that, the income tax in this type of deposit accounts is 15% for the returns (see below *). Year 1 2 3 45 6 7 8 9 10 Estimated MARR (%) 10 11 9 9 8.5 10 9.5 11.598.5 IPS System: Her current salary is 10,000 TL. She will save 1,000TL for each month for the first year. For the following years, she will get salary increases. Her net savings will also be increased as salary increases in same percentages. The 10 year estimated salary increase percentages are given as in below table. 2 3 4 5 6 7 8 9 10 Year Increase (%) 3.5 4 3.8 4.1 2.9 3.4 4.3 2.8 3.7 In IPS, she is able to deposit any additional amount at any time. This amount will be withdrawn from bank deposit. Remaining amount will still be kept in the bank deposit. However, she is planning to deposit these extra amount payments anytime between 6th and 10th years. She wants to see from her friend to present at least four different alternative plans that show in which month additional deposit should be made to get maximum accumulated amount at the end of year 10. - If she chooses IPS, the government provides %25 support in entire accumulated amount at the end. Note that, the annual total government support could not be more than 7,500 TL. But, İlkay will be able to get %60 percent of the government support if she quits the system at the end of year 10. Estimated annual returns on the pension deposits compounded monthly are given below to calculate the accumulated total amount in IPS. 1 2 3 45 6 7 8 9 10 Rate of Return (%) 11 10 8.5 9 10 9.8 10.2 12.3 12 11.8 Year Also, there will be an income tax of 10% for IPS returns to be calculated at the end of year 10 (see below **). In the lights of information supplied above, she wonders that: How reasonable are her goals? What will be the accumulated amount for the investment plan at the end of 10-year period? Note that you are supposed to perform analyzing your alternatives with at least using present worth and rate of return methods on Microsoft Excel. Notes: Income tax for bank deposits is to be deductible at the end of each compounding period: After Tax Effective Effective Тax Rate * Interest Rate ( 1 %3D Interest Rate (%15) Income tax in IPS is to be deductible at the end of 10 years period: Net Total Amount of Total Amount of Total Amount Tax Rate ( Money Accumulated - of Deposits for ) * ( in IPS Income Money (%10) After Tax Accumulated in IPS IPS İlkay Yaşam at age of 32 has been working for a worldwide company as an engineer with current net salary 12,500 TL. She decided to make an investment for her child's education for a 10-year time frame. In the last 8 years, she has saved a small fortune as an amount of 100,000 TL. She is little confused about type of the investment that she will make. There are two ways to invest her savings for her child's education. First way is to deposit money for Individual Pension System (IPS). IPS is a system that enables people to earn an income that can maintain their living standards in retirement periods by directing the savings they make during their active working lives to long-term investment. However, although IPS is designed for retirement (more than 10 years), İlkay is planning to use the system as 10-year time frame as a saving tool. Second way to save money for her child's education is to create deposit account in a bank for 10-year time frame. Hence, she asked a friend (who took Engineering Economy) for a help that her financial plans by developing the monthly financial plan (cash flows) with taking into account the time value of the money. Bank Deposit: Saving amount of 50,000TL will be deposited in a bank for 10-year period. Estimated MARR values for each year compounded monthly, are given in below table. Note that, the income tax in this type of deposit accounts is 15% for the returns (see below *). Year 1 2 3 45 6 7 8 9 10 Estimated MARR (%) 10 11 9 9 8.5 10 9.5 11.598.5 IPS System: Her current salary is 10,000 TL. She will save 1,000TL for each month for the first year. For the following years, she will get salary increases. Her net savings will also be increased as salary increases in same percentages. The 10 year estimated salary increase percentages are given as in below table. 2 3 4 5 6 7 8 9 10 Year Increase (%) 3.5 4 3.8 4.1 2.9 3.4 4.3 2.8 3.7 In IPS, she is able to deposit any additional amount at any time. This amount will be withdrawn from bank deposit. Remaining amount will still be kept in the bank deposit. However, she is planning to deposit these extra amount payments anytime between 6th and 10th years. She wants to see from her friend to present at least four different alternative plans that show in which month additional deposit should be made to get maximum accumulated amount at the end of year 10. - If she chooses IPS, the government provides %25 support in entire accumulated amount at the end. Note that, the annual total government support could not be more than 7,500 TL. But, İlkay will be able to get %60 percent of the government support if she quits the system at the end of year 10. Estimated annual returns on the pension deposits compounded monthly are given below to calculate the accumulated total amount in IPS. 1 2 3 45 6 7 8 9 10 Rate of Return (%) 11 10 8.5 9 10 9.8 10.2 12.3 12 11.8 Year Also, there will be an income tax of 10% for IPS returns to be calculated at the end of year 10 (see below **). In the lights of information supplied above, she wonders that: How reasonable are her goals? What will be the accumulated amount for the investment plan at the end of 10-year period? Note that you are supposed to perform analyzing your alternatives with at least using present worth and rate of return methods on Microsoft Excel. Notes: Income tax for bank deposits is to be deductible at the end of each compounding period: After Tax Effective Effective Тax Rate * Interest Rate ( 1 %3D Interest Rate (%15) Income tax in IPS is to be deductible at the end of 10 years period: Net Total Amount of Total Amount of Total Amount Tax Rate ( Money Accumulated - of Deposits for ) * ( in IPS Income Money (%10) After Tax Accumulated in IPS IPS
Expert Answer:
Answer rating: 100% (QA)
Option 1Savings bank Account Year Interest Rate Compounded Monthly After the taxeffective interest rate Income tax 15 Interest rate115 FV of the amoun... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
Posted Date:
Students also viewed these economics questions
-
One of your clients, a motion picture producer, has asked your firm to invest $2 million in her latest motion picture production, a movie based on the life of 1960s singing star Janis Joplin. In...
-
Suppose that the demand for funds from borrowers from banks for home loans is inversely related to the rate of interest. The total cost for a bank to supply funds to borrowers is fq++ FC; where f is...
-
A record of transactions for the month of May is as follows: Purchases (balance) 400 @ $4.00 1,300 @ $4.10 800 @$4.30 700 @ $4.40 1,200 @ $4.50 May 1 4 8 14 22 29 May 3 6 12 18 25 Sales 300 @ $7.00...
-
Use lHpitals rule to find the limit. 31 + 3 43 14t - t + 3 lim
-
Gross domestic product (GDP) is a major indicator of a nation's overall economic activity. It consists of personal consumption expenditures, gross domestic investment, net exports of goods and...
-
Duplicate the calculations for reducmpi.f and experiment with different numbers of processors. Duplicate the calculations for dot2mpi.f and experiment with different numbers of processors and...
-
Which of the following information system functions focuses on the identification of problems and projects for computer processing? (a) user support (b) programming (c) operations (d) systems analysis
-
Explain how useful each of the following can be during the estimating of project costs: a. Contingency planning and estimating b. Using historical databases c. Usefulness of computer estimating d....
-
Can you help me with this assignment: Draft an Environmental Management Program ( max . 1 0 pages report ) for a specified environmental objectives or targets for Facilities Management Department in...
-
While pulling out of her driveway, Bethany becomes distracted by a bee and strikes Melanie, who is riding past on a bicycle. Bethany suffers serious injury as a result of the accident while Melanie...
-
The adjusted trial balance of Joseph Cooper Co. as of December 31. 2020, contains the following: JOSEPH COOPER CO. ADJUSTED TRIAL BALANCE DECEMBER 31, 2020 Cash Accounts Receivable Prepaid Rent...
-
How may the individual budgets in the master budget be classified?
-
In 1980, Frank Sinopoli, a 27-year-old accountant, accepted a job offer from a CPA firm based in Dallas, Texas. Four years later, Sinopoli became a partner with the firm. Perkins, Dexter, Sinopoli &...
-
How does budgeting in service and not-for-profit entities and government entities differ from budgeting in manufacturing and merchandising entities?
-
What are the criteria used in management by exception?
-
What conditions are essential for responsibility accounting?
-
Back in January of 2017, Congresswoman Marsha Blackburn (of Tennessee) posted a poll on Twitter to get feedback on Republicans' proposed ObamaCare repeal. Of the 7,968 votes, 84% responded: no, they...
-
What is the role of business risk analysis in the audit planning process?
-
In recent years, many companies have invested in equipment to automate processes that were once performed manually. A simple example is a drive-through car wash, where robots wash and dry the cars...
-
Why must a company consider its incentive and reward system when implementing a balanced scorecard approach?
-
Russell Preston delivers parts for several local auto parts stores. He charges clients $0.75 per mile driven. Russell has determined that if he drives 3,000 miles in a month, his average operating...
-
Which of the following is a general term that is used to describe the use of electronic technology for business documents? (a) telecommuting (b) information system (c) office automation (d)...
-
( __________________ ) is the direct computer-to-computer exchange of business documents via a communications network. (a) electronic data interchange (b) electronic funds transfer (c) telecommuting...
-
The three general phases of analysis, design, and implementation are part of a ( _________________ ). (a) system development study (b) systems approach (c) expert system (d) decision support system
Study smarter with the SolutionInn App