Teachers at the kindergarten through high school level may deduct up to $225 of education supplies and materials cost each year
1 answer:
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Answer:
A. 2 years
B. 86.96
C. 16.46%
Explanation:
Payback period calculates the amount of time taken to recoup the initial investment made on a project.
The net present value substracts the present value of tax adjusted cash flows from the amount invested in the project.
Using the financial calculator to find the NPV:
Cash flow for year 0 = -500
Cash flow for year 1 = 300
Cash flow for year 2 = 200
Cash flow for year 3 = 150
Interest rate = 6%
NPV = $86.96
Internal rate of return is the discount rate that equates the tax adjusted cash flows from a project to the original amount invested.
Using the financial calculator to find the NPV:
Cash flow for year 0 = -500
Cash flow for year 1 = 300
Cash flow for year 2 = 200
Cash flow for year 3 = 150
Interest rate = 6%
IRR = 16.46%
Answer:
Yes
Explanation:
From her current age of 28 to her retirement age of 65, RuthAnn has (65 - 28 =) 37 more years to work.
If she saves 11% of her annual income of $36,278.13 into a 401(k), she will be setting aside (11% * 36,278.13 =) $3,990.59 into the 401(k) account annually.
At 7.1% compounding rate, in 37 years, RuthAnn would have set aside an amount estimated by the future value of an annuity formula.
where FV is the future value, the amount that would have been set aside,
A = is the annual savings,
r = is the compounding rate, and
n = is the number of years.
Therefore, the total amount that would be saved up after 37 years =
= (3,990.59 * 11.6535)/0.071
= $654,990.31.
By spending $32,523 annually from an account earning 7.1% compound interest rate for 30 years, the present value of the total amount needed by RuthAnn today that will be sufficient for her retirement spending can be estimated using the present value of an annuity formula.
=
= (32523 * 0.8723)/0.071
= $399,574.83.
Since the amount saved up ($654,990.31) is more than the total amount required for RuthAnn's retirement ($399,574.83), RuthAnn has more than sufficient to meet her Retirement goal.
Specifically, the amount she has saved up can support a maximum annual spending which can be estimated from the present value of an annuity formula.
where PV = the amount saved up, $654,990.31,
A = the annual spending which we are estimating,
r = the 7.1% compound interest rate,
n = the number of years to retirement.
= 654,990.31 = (A * 0.8723)/0.071
= A = 654,990.31/0.8723 * 0.071
= A = 53,312.29
Thus, the amount saved up can support a maximum retirement spending of $53,312.29, which is higher than the $32,523 annual income needed by RuthAnn for her retirement.