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Richard, age 40, is the owner of Auto Repair, Inc. In addition to Richard, the company has five employees. Richard wants to establish a retirement plan for his employees. He is considering two plans: (1) a Section 401(k) plan and (2) a SEP-IRA. Assume you are a financial planner and Richard asks for your advice. Answer the following questions.
a. Explain to Richard the advantages and disadvantages of each plan.
b. Assume that Auto Repair establishes a 401(k) plan. Employees can elect a salary deferral of up to 6 percent of compensation but not to exceed $17,000 (2012 limit for participants under age 50).The company makes a matching contribution of 50 cents for each dollar contributed. James, age 25, is a mechanic who has decided to defer only 3 percent of his wages because of substantial personal expenses. What advice would you give to James?
c. Susan, age 28, is the company's office manager and earns $35,000. She has worked for the company for three years. Can Richard exclude her from participating in the 401(k) plan to hold down retirement contributions? Explain your answer
You have $21,072.44 in a brokerage account, and you plan to deposit an additional $6,000 at the end of every future year until your account totals $210,000. You expect to earn 11% annually on the account. How many years will it take to reach your goa..
Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €1.8 million in Year 1, €2.6 million in Year 2, and €3.5 million in Year 3. The current spot exchange rate is $1.36/€..
Deci-Bell, Inc. is producing new headphones, but first management wants to determine its degree of operating leverage. Deci-Bell Inc. has a base level of sales of 325,784 units. Sales price per unit is $151.98 and variable cost per unit is $ $69.78. ..
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Beta Industries has net income of $3,400,000, and it has 1,085,000 shares of common stock outstanding. The company's stock currently trades at $65 a share. Beta is considering a plan in which it will use available cash to repurchase 30% of its shares..
Suppose the exchange rate is $1.2757 per euro. If the dollar depreciates by 9% against the dollar, how many Euros would a dollar buy tomorrow? Round to 4 decimal points
A large automobile manufacturer has developed a continuous variable transmission (CVT) that provides smooth shifting and enhances fuel efficiency by 3 mpg of gasoline. The extra cost of a CVT is $850 on the sticker price of a new car.
A homeowner took out a 30-year, fixed-rate mortgage of $310,000. The mortgage was taken out 10 years ago at a rate of 7.50 percent. If the homeowner refinances, the charges will be $2,500. What is the highest interest rate at which it would be benefi..
You are given the following financial data for Company A: Cash = $6,000; inventories = $1,000; accounts receivable = $700; other current assets = $500; long-term assets = $1,000; accounts payable = $800; other current liabilities = $4000; net income ..
Air products and Chemicals sold $125 million of notes in Nov. of 2003 with a December 1. 2010, maturity date. The bonds were sold at a discount of $99.721 per $100 with a coupon rate of 4.125%. Assume that bonds with a face value if $10,000 were purc..
A bond is likely to be called if its coupon rate is below its YTM. A bond is likely to be called if its market price is below its par value. Even if a bond’s YTC exceeds its YTM, an investor with an investment horizon longer than the bond’s maturity ..
Compare and contrast the main policies of the US Federal Reserve and the European Central Bank over the last 10 years. Based on these policies, identify and contrast the main priorities of these institutions. How do these policies affect exchange rat..
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