Fin 324

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3-2 Week 2 Lecture: Analyzing Financing Activities Financial Statement Analysis Overheads from K.R. Subramanyam textbook resources as amended by F.Hui for FIN324 2016. CHAPTER Liabilities (including employee benefits), Equity And off balance sheet transactions Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 3-3 Overview of Chapter Companies operations are financed by various sources: • Liabilities • Capital (Stockholders’ Equity) • Off balance sheet transactions 3-4 Companies’ Financing Sources Liabilities Capital (Stockholders’ Equity) Off balance sheet transactions 3-5 Liabilities…show more content…
Need to determine the following related to each employee: • Life expectancy • Employee turnover • Compensation growth • Expected rates of return • Interest rates Answer: An Actuary 3-19 Determining Future Annual Benefit Cost 3-20 Postretirement Benefits Illustration of Pension Accumulation and Disbursement for a Defined Benefits Plan Step 2 How much needs to be “accrued” at the time of an employee’s retirement? Step 2 Annual payments into the Fund required to accumulate to $134,200 in 15 years with a discount rate of 8%per annum Contributions = $4,942 per annum Funds required at employees’ retirement: Present value of 10 payments of $20,000 per annum with a discount rate of 8% per annum $134,200 Benefits = $20,000 per annum 10 years 15 years Preretirement Annual benefits of $20,000 paid to employee for 10 years Retirement Postretirement 3-21 3-22 Determining Future Annual Benefit Cost Determining Future Annual Benefit Cost Step 3 How much is required to be expensed each year so that the amount needed to be “accrued” at the time of an employee’s retirement is achieved? How do we determine the number of years? Step 3 How much is required to be expensed each year so that the amount needed to be “accrued” at the time of an employee’s retirement is achieved? Answer – PV of an Annuity 3-23 Determining Future Annual Benefit Cost

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