Ben Williams just graduated with a B.S. in engineering and landed a new job with a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Ben Williams just graduated with a B.S. in engineering and landed a new job with a starting annual salary of $60,000. There are a number of things that he would like to do with his newfound "wealth." For starters, he needs to begin repaying his student loans (totaling $20,000) and he'd like to reduce some outstanding balances on credit cards (totaling $5,000). Ben also needs to purchase a car to get to work and would like to put money aside to purchase a condo in the future. Last, but not least, he wants to put some money aside for his eventual retirement. Our recent graduate needs to do some financial planning for which he has selected a 10-year time frame. At the end of 10 years, he'd like to have paid off his current student loan and credit card debt, as well as have accumulated $50,000 for a down payment on a condo, If possible, Ben would like to put aside 10% of his take home salary for retirement. He has gathered the following information to assist him in his planning. The stated problem data are current as of 2021. Student loans are typically repaid in equal monthly installments over a period of 10 years. The interest rate on Ben's loan is 7% compounded monthly. Credit cards vary greatly in the interest rate charged. Typical APR rates are close to 17%, and monthly minimum payments are usually computed using a 10-year repayment period. The interest rate on Ben's credit card is 18% compounded monthly. Car loans are usually repaid over three, four, or five years. The APR on a car loan can be as low as 2.9% (if the timing is right) or as high as 12%. As a first-time car buyer, Ben can secure a $15,000 car loan at 3% compounded monthly to be repaid over 60 months. A 30-year, fixed rate mortgage is ENGR331 Engineering Economy Term Project Due: July 1* 2021 before 11:59pm Central Time currently going for 4.5%-6.0% per year. If Ben can save enough to make a 20% down payment on the purchase of his condo, he can avoid private mortgage insurance that can cost as much as S60 per month. Investment opportunities čan provide variable returns. "Safe" investments can guarantee 5% per year, while "risky" investments could return 30% or more per year. Ben's parents and older siblings have reminded him that his monthly take home pay will be reduced by income taxes and benefit deductions, He should not count on being able to spend more than 80% of his gross salary. A) As Ben's friend (and the one who took Engineering Economy), you have been asked to review his financial plans. How reasonable are his goals? (40 pts) B) After Ben's car is paid off, he plans to continue setting aside the amount of his car payment to accumulate funds for the car's replacement. If he invests this amount at a rate of 3% compounded monthly, how much will he have saved by the end of the initial 10- year period? (20 pts) C) Ben has planned to have $50,000 at the end of 10 years to place a down payment on a condo. Property taxes and insurance can be as much as 30% of the monthly principal and interest payment (i.e., for a principal and interest payment of $1,000, taxes and insurance would be an additional $300). What is the maximum purchase price he can afford if he'd like to keep his housing costs at $1,000 per month? (20 pts) D) If Ben is more daring with his retirement investment savings and feels he can average 10% per year, how much will he have accumulated for retirement at the end of the 10- year period? (20 pts) Ben Williams just graduated with a B.S. in engineering and landed a new job with a starting annual salary of $60,000. There are a number of things that he would like to do with his newfound "wealth." For starters, he needs to begin repaying his student loans (totaling $20,000) and he'd like to reduce some outstanding balances on credit cards (totaling $5,000). Ben also needs to purchase a car to get to work and would like to put money aside to purchase a condo in the future. Last, but not least, he wants to put some money aside for his eventual retirement. Our recent graduate needs to do some financial planning for which he has selected a 10-year time frame. At the end of 10 years, he'd like to have paid off his current student loan and credit card debt, as well as have accumulated $50,000 for a down payment on a condo, If possible, Ben would like to put aside 10% of his take home salary for retirement. He has gathered the following information to assist him in his planning. The stated problem data are current as of 2021. Student loans are typically repaid in equal monthly installments over a period of 10 years. The interest rate on Ben's loan is 7% compounded monthly. Credit cards vary greatly in the interest rate charged. Typical APR rates are close to 17%, and monthly minimum payments are usually computed using a 10-year repayment period. The interest rate on Ben's credit card is 18% compounded monthly. Car loans are usually repaid over three, four, or five years. The APR on a car loan can be as low as 2.9% (if the timing is right) or as high as 12%. As a first-time car buyer, Ben can secure a $15,000 car loan at 3% compounded monthly to be repaid over 60 months. A 30-year, fixed rate mortgage is ENGR331 Engineering Economy Term Project Due: July 1* 2021 before 11:59pm Central Time currently going for 4.5%-6.0% per year. If Ben can save enough to make a 20% down payment on the purchase of his condo, he can avoid private mortgage insurance that can cost as much as S60 per month. Investment opportunities čan provide variable returns. "Safe" investments can guarantee 5% per year, while "risky" investments could return 30% or more per year. Ben's parents and older siblings have reminded him that his monthly take home pay will be reduced by income taxes and benefit deductions, He should not count on being able to spend more than 80% of his gross salary. A) As Ben's friend (and the one who took Engineering Economy), you have been asked to review his financial plans. How reasonable are his goals? (40 pts) B) After Ben's car is paid off, he plans to continue setting aside the amount of his car payment to accumulate funds for the car's replacement. If he invests this amount at a rate of 3% compounded monthly, how much will he have saved by the end of the initial 10- year period? (20 pts) C) Ben has planned to have $50,000 at the end of 10 years to place a down payment on a condo. Property taxes and insurance can be as much as 30% of the monthly principal and interest payment (i.e., for a principal and interest payment of $1,000, taxes and insurance would be an additional $300). What is the maximum purchase price he can afford if he'd like to keep his housing costs at $1,000 per month? (20 pts) D) If Ben is more daring with his retirement investment savings and feels he can average 10% per year, how much will he have accumulated for retirement at the end of the 10- year period? (20 pts)
Expert Answer:
Answer rating: 100% (QA)
The reason for this paper is to break down monetary proportionalit... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
A rather wealthy man decided he would like to arrange for his descendants to be well educated. He would like each child to have $60,000 for his or her education. He plans to set up a perpetual trust...
-
A rather wealthy man decided he would like to arrange for his descendants to be well educated. He would like each child to have $60,000 for his or her education. He plans to set up a perpetual trust...
-
Josh earns $80,000 a year. He would like to purchase a home and applies for a mortgage from the bank. The bank requires that the debt not exceed 28 percent of his annual income. With the current down...
-
Let be twice-differentiable and one-to-one on an open interval I. Show that its inverse function g satisfies When is increasing and concave downward, what is the concavity of -1 = g? g"(x) =...
-
Suppose that a number x is to be selected from the real line S, and let A, B, and C be the events represented by the following subsets of S, where the notation {x: - - -} denotes the set containing...
-
The angle of refraction of a ray of light traveling into an ice cube from air is 46. Find the angle of incidence.
-
If you hold a piece of cracker in your mouth without chewing it, the cracker will dissolve. However, this doesnt happen with a piece of meat. Why?
-
At May 31, 2012, the accounts of Mantle Manufacturing Company show the following. 1. May 1 inventoriesfinished goods $12,600, work in process $14,700, and raw materials $8,200. 2. May 31...
-
What are the challenges and opportunities associated with the development of biopharmaceuticals, including monoclonal antibodies, therapeutic proteins, and gene therapies, for clinical use ?
-
The DuPont formula defines the net return on shareholders equity as a function of the following components: Operating margin Asset turnover Interest burden Financial leverage Income tax rate...
-
Based on the information which of the following statements is most likely to be correct? Select one: O a. Company B is overvalued relative to Company C O b. Company A is overvalued relative to...
-
Generally, when work orders evidencing [a] are summarized on RUS Form 219, Inventory of Work Orders, the amount shown in Column 9, Loan Funds Subject to Advance by RUS, is equal to the excess of the...
-
In the case of a change in accounting principle, the entity must Multiple select question. compute the cumulative effect of change on the preceding 10 years tax liability. disclose the number of...
-
You are evaluating buying an apartment building. It is expected to generate annual cash flow of $100,000 for each of the next 6 years. Please use this information for problems 3 - 5. If you have to...
-
Which of these amended the Truth in Lending Act, requiring credit and charge card issuers to provide certain disclosures in direct mail, telephone, and other applications and solicitations for...
-
An ordinary annuity assumption means that cash is expected to change hands Multiple Choice in a series of exchanges made at the beginning of each period. in a series of exchanges made at the end of...
-
If a note to the company's financial statements shows the amount of cash separately from the amount of cash equivalents, then a. All cash and cash equivalents should be considered to be non operating...
-
7 A 29-year-old, previously healthy man suddenly collapses at a party where legal and illicit drugs are being used. Enroute to the hospital, he requires resuscitation with defibrillation to establish...
-
For the following diagram, compute the IRR to within 112%. 125 4 5 6 3 1 0 060
-
Our cat, Fred, has convinced me that I should set up an account that will assure him of his Meow Mix for the next 4 years. I will deposit an amount P today that will permit Fred to make...
-
List the potential costs, benefits, and disbenefits that should be considered when one is evaluating a nuclear power plant construction.
-
In what way are glaciers like dirty snowballs?
-
Distinguish between mechanical and chemical weathering.
-
Name an environment where wind shapes the landscape to a significant degree.
Study smarter with the SolutionInn App