What is the minimum accrual rate, Corporate Finance

Question:

Car Maker Ltd is a multinational. In one of the countries where it is present, current legislation makes it compulsory for companies to pay a gratuity lump sum at retirement equivalent to 150% of the monthly salary per complete year of service. For companies which have a pension scheme in place, they can deduct 100 times the monthly pension off the gratuity lump sum payment. Car Maker Ltd wants to put in place a final salary DB scheme to fund in advance this gratuity benefit

a) What is the minimum accrual rate that will ensure that Car Maker will have no liability at retirement in respect of the gratuity?

b) How will your answer to (a) above change if Car Maker Ltd defines pensionable salary as the average over the last 5 years instead of using final salary? Explain

c) On a purely cost basis, is it in the interest of Car Maker to set up a DB scheme with the minimum accrual rate to fund for the gratuity lump sum assuming that retirement age is 65 and life expectancy at retirement is 12 years? Explain

d) How would your answer to (c) above change if all employees of Car Maker Ltd were females instead of males? Explain

Posted Date: 12/4/2013 2:24:52 AM | Location : United States







Related Discussions:- What is the minimum accrual rate, Assignment Help, Ask Question on What is the minimum accrual rate, Get Answer, Expert's Help, What is the minimum accrual rate Discussions

Write discussion on What is the minimum accrual rate
Your posts are moderated
Related Questions
#questionSelecting Kanton Company''s Financing Strategy and Unsecured Short-Term Borrowing Arrangement. Morton Mercado, the CFO of Kanton Company, carefully developed the estimate

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6

Question: Car Maker Ltd is a multinational. In one of the countries where it is present, current legislation makes it compulsory for companies to pay a gratuity lump sum at ret

Problem: (a) The Mauritius Automated Clearing and Settlement System (MACSS) is the Mauritian Real-time Gross Settlement (RTGS) system. (i) Outline briefly the concept of R


reasons for capital rationing in public sector

Think of any business you would like to open in Lebanon (from small to big project) and prepare a preliminary income statement from five to eight years maximim. Compute the expecte

GeKay Inc. currently (January 1) has a net income of $10,000,000 which is expected to grow indefinitely(perpetuity) at 10% per annum.   The firm is financed at a debt-to -value ra

Question: Trade finance is much facilitated by banks' intervention as guarantors for the execution of financial commitments on behalf of importers. Banks provide a large variet