Magnus, just turned 32, is a freelance web designer. He has just won a design project...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Magnus, just turned 32, is a freelance web designer. He has just won a design project contract from AAA Inc. that would last for 3 years. The contract offers two different pay packages for Magnus to choose from: Package I: $30,000 paid at the beginning of each month over the three-year period. Package II: $26,000 paid at the beginning of each month over the three years, along with a $200,000 bonus (more commonly known as "gratuity") at the end of the contract. The relevant yearly interest rate is 12.68250301%. a) Which package has higher value today? [Hint: Take a look at the practice questions set IF you have not done so yet!] (14 marks) b) Confirm your decision in part (a) using the Net Present Value (NPV) decision rule. (4 marks) c) Continued from part (a). Suppose Magnus plans to invest the amount of income he accumulated at the end of the project (exactly three years from now) in a retirement savings plan that would provide him with a perpetual stream of fixed yearly payments starting from his 60th birthday. How much will Magnus receive every year from the retirement plan if the relevant yearly interest rate is the same as above (12.68250301%)? (7 marks) Magnus, just turned 32, is a freelance web designer. He has just won a design project contract from AAA Inc. that would last for 3 years. The contract offers two different pay packages for Magnus to choose from: Package I: $30,000 paid at the beginning of each month over the three-year period. Package II: $26,000 paid at the beginning of each month over the three years, along with a $200,000 bonus (more commonly known as "gratuity") at the end of the contract. The relevant yearly interest rate is 12.68250301%. a) Which package has higher value today? [Hint: Take a look at the practice questions set IF you have not done so yet!] (14 marks) b) Confirm your decision in part (a) using the Net Present Value (NPV) decision rule. (4 marks) c) Continued from part (a). Suppose Magnus plans to invest the amount of income he accumulated at the end of the project (exactly three years from now) in a retirement savings plan that would provide him with a perpetual stream of fixed yearly payments starting from his 60th birthday. How much will Magnus receive every year from the retirement plan if the relevant yearly interest rate is the same as above (12.68250301%)? (7 marks)
Expert Answer:
Related Book For
Accounting Principles
ISBN: 978-0470534793
10th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
Students also viewed these finance questions
-
Complete the following ANOVA table. *Round your answer to 2 decimal places, the tolerance is +/-0.01. **Round your answer to 3 decimal places, the tolerance is +/-0.001. *** Round your answer to 2...
-
The inventory and sales data for this year for G. Rabbit Company are as follows: Required Using the above data from G. Rabbit Company, compute the following: a. The accounts receivable turnover in...
-
The Haines Corp. shows the following financial data for 20X1 and 20X2. For each year, compute the following and indicate whether it is increasing or decreasing profitability in 20X2 as indicated by...
-
Develop, debug, and document a program to determine the roots of a quadratic equation, ax2 + bx + c, in either a high-level language or a macro language of your choice. Use a subroutine procedure to...
-
Potassium metal has a body-centered cubic structure with all atoms at the lattice points. The density of the metal is 0.856 g/cm3. Calculate the edge length of a unit cell.
-
A large electromagnet has an inductance of 50 H and a resistance of 8.0 . It is connected to a dc power source of 250 V. Find the time for the current to reach (a) 10 A and (b) 30 A.
-
What is single-plane balancing?
-
Medidata Inc. has identified three risk opportunities for their new medical database project. One is an opportunity to extend the database to include doctors as well as hospitals. This has a...
-
Varsity Furniture began June with merchandise inventory of 41 sofas that cost a total of $29,110. During the month, the company purchased and sold merchandise on account as follows: June 7 June 14...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
9313 "The following project is to be scheduled using the expected durations found using th e 3 point estimate formula All duration estimates are in weeks Note round to two decimal places"
-
Company has a $50,000 operating line of credit and the company borrowed 45000 of this line at 6% interest on April 1. The bank will calculate interest due each month on the amount drawn from the line...
-
Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May. Standard Cost per Unit Actual Cost per Unit...
-
As a bookkeeper or accounting professional, it is crucial to have a comprehensive understanding of the general journal and the process of entering correcting entries, as well as the principles for...
-
If a financial institution was reviewing the financial statements of corporation to determine if they would be able to meet the interest payments, which ratio would be best to use? 2. When using...
-
The Company under audit has multiple locations all across Canada. Each location has significant operations and assets. There are also many transactions between the locations. How do we get sufficient...
-
The winner of a lottery is awarded $ 6 , 0 0 0 , 0 0 0 to be paid in annual installments of $ 3 0 0 , 0 0 0 for 2 0 years. Alternatively, the winner can accept a "cash value" one - time payment of $...
-
The Heese Restaurant Group manufactures the bags of frozen French fries used at its franchised restaurants. Last week, Heeses purchased and used 101,000 pounds of potatoes at a price of $ 0.70 per...
-
Whitegloves Janitorial Service was started 2 years ago by Nancy Kohl. Because business has been exceptionally good, Nancy decided on July 1, 2012, to expand operations by acquiring an additional...
-
Favre Company expects to produce 50,000 units of product IOA during the current year. Budgeted variable manufacturing costs per unit are direct materials $7, direct labor $12, and overhead $18....
-
Devin Advertising Companys trial balance at December 31 shows Supplies $6,700 and Supplies Expense $0. On December 31, there are $2,500 of supplies on hand. Prepare the adjusting entry at December...
-
The finite difference method requires the use of finite difference approximations in a. governing differential equation only b. boundary conditions only c. governing differential equation as well as...
-
Fill in the Blanks. In a conditionally stable method, the use of \(\Delta t\) larger than \(\Delta t_{\text {cri }}\) makes the method _____________.
-
True or False. For a beam with grid points \(-1,1,2,3, \ldots\), the central difference approximation of a simply supported end condition at grid point 1 is given by \(W_{-1}=W_{2}\).
Study smarter with the SolutionInn App