Determine the npv and annual savings, Financial Accounting

Joe has two children, Sydney age 5 and William age 2, that he wants to provide for their education funding.  Currently, tuition is $10,000 per year and tuition inflation is 6%.  Joe expects to earn 10% on his investments and he expects the children to start college at age 18 and go to college for 4 years. Joe wants his last savings payment to be made when the oldest child starts college.  How much must Joe save at the end of each year?

Step 1: Determine the NPV at time period zero of the cash flows. Recall that this step determines the amount that could be deposited today, to satisfy the education funding need.

Step 2: Determine the annual savings required to meet the education goal. 

Note: During this step it is important to determine two criteria:  (1) How long does the client intend to save and (2) When will the savings payment be made? In this problem, Joe's oldest child is 5 and he intends to save until she starts college, which is in 13 years. He also indicates that he wants to "save at the end of each year" which indicates that this is an ordinary annuity problem.

 

Posted Date: 3/7/2013 2:15:10 AM | Location : United States







Related Discussions:- Determine the npv and annual savings, Assignment Help, Ask Question on Determine the npv and annual savings, Get Answer, Expert's Help, Determine the npv and annual savings Discussions

Write discussion on Determine the npv and annual savings
Your posts are moderated
Related Questions
Financials Investments, a group of financial advisors and retirement planners, has been requested to provide advice on how to invest $200,000 for one of its clients. The client has

Arnot International's bonds have a present market price of $1,250. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may

Trend Analysis Trend analysis is an improvement over year-to-year analysis. When a comparison of financial statements covering more than three years i

Accounting objectives Accounting has two main objectives: To assist control over the assets and liabilities, and the income and expenditure of the enterprise; and To

Your firm's research department has estimated the income elasticity of demand for Art Deco lawn furniture to be 1.5. You have just learned that due to an upturn in the economy, con

Explain the mechanism that states use to prevent the double taxation of the income of a corporation doing business in two or more states.

Thomas Crown expects to earn the following stream of annual income for the next four years:- $41,000; $45,000; $38,000 and $50,000. Although he has adopted the ‘Pay Yourself Firs

Funding the investment by an issue of ordinary shares could tender several advantages to Springbank plc. Gearing would drop to 47% (3·5/7·4) fewer than half of the sector average o

Joe Shareholder owns 100 shares of Peach Company stock which is currently selling for $100 per share. Peach declares a 2-1 stock split. How much are Joe's shares worth after the st

Given information: Offered a $20 million commercial loan priced using a 3month LIBOR index+100bp. After some preliminary research, using a money center bank''s swap trading desk