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Loose Leaf for Principles of Taxation for Business and Investment Planning 2019 Edition
22nd Edition
ISBN: 9781260161472
Author: Sally Jones, Shelley C. Rhoades-Catanach
Publisher: McGraw-Hill Education
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Question
Chapter 15, Problem 3TPC
To determine
Ascertain the type of investment that is having the greatest after-ta future value.
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Students have asked these similar questions
An individual is considering contributing $4,000 per year to either a traditional or a
Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her
contributions would be fully deductible. She is 40-years old and is in a 28 percent tax
bracket. On either IRA she can earn 7 percent. When she retires at age 65, she
believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per
year, but any tax savings due to the deductibility of her contributions in a taxable
investment earning a pretax rate of 7 percent. She will withdraw all her money upon
retirement and may owe taxes then, depending on the type of IRA chosen.
What is the after-tax future value of the traditional IRA including the invested tax
deductions?
Group of answer choices
$237,545.47
$268,796.81
$215,046.73
$245,384.26
$252,996.15
Julie has just retired. Her company's retirement program has two options as to how retirement benefits can
be received. Under the first option, Julie would receive a lump sum of $158,000 immediately as her full
retirement benefit. Under the second option, she would receive $21,000 each year for five years plus a lump-
sum payment of $66,000 at the end of the five-year period.
Use Excel or a financial calculator to solve. Round answers to the nearest dollar.
Required:
1a. Calculate the present value for the following assuming that the money can be invested at 12%.
Present Value of
First Option
Lump-sum payment
2$
158,000
Present Value of
Second Option
Total present value
$
134,629
1b. If you can invest money at a 12% return, which option would you prefer?
First option
Second option
References
eBook & Resources
Julie has just retired. Her company’s retirement program has two options as to how retirement benefits canbe received. Under the first option, Julie would receive a lump sum of $150,000 immediately as her fullretirement benefit. Under the second option, she would receive $14,000 each year for 20 years plus a lumpsum payment of $60,000 at the end of the 20-year period.Required:If she can invest money at 12%, which option would you recommend that she accept? Use present valueanalysis.
Chapter 15 Solutions
Loose Leaf for Principles of Taxation for Business and Investment Planning 2019 Edition
Ch. 15 - Prob. 1QPDCh. 15 - Prob. 2QPDCh. 15 - Prob. 3QPDCh. 15 - Discuss the practical reasons why the tax law...Ch. 15 - Prob. 5QPDCh. 15 - Mr. Burnett owns 10 percent of the stock of ABC...Ch. 15 - This year, publicly held Corporation DF paid its...Ch. 15 - Mr. Zelig was recently promoted to an executive...Ch. 15 - Prob. 9QPDCh. 15 - Prob. 10QPD
Ch. 15 - Prob. 11QPDCh. 15 - Prob. 12QPDCh. 15 - Prob. 13QPDCh. 15 - Prob. 14QPDCh. 15 - Greg Company agreed to pay Ms. Bilko 45,000...Ch. 15 - Trent Inc. needs an additional worker on a...Ch. 15 - Prob. 3APCh. 15 - Prob. 4APCh. 15 - Mr. and Mrs. Soon are the sole shareholders of SW...Ch. 15 - Prob. 6APCh. 15 - Mrs. Flay, age 57, participates in the group term...Ch. 15 - Mrs. Ellers corporate employer has a cafeteria...Ch. 15 - Mr. Nixon and Mr. Ryan are employed by HD Inc.,...Ch. 15 - Peet Company provides free on-site day care for...Ch. 15 - This year, Faro Inc., a calendar year taxpayer,...Ch. 15 - Prob. 12APCh. 15 - Prob. 13APCh. 15 - Prob. 14APCh. 15 - Refer to the facts in the preceding problem. Five...Ch. 15 - Prob. 16APCh. 15 - Prob. 17APCh. 15 - Prob. 18APCh. 15 - Prob. 19APCh. 15 - Prob. 20APCh. 15 - Prob. 21APCh. 15 - Prob. 22APCh. 15 - Prob. 23APCh. 15 - Prob. 24APCh. 15 - Prob. 25APCh. 15 - Prob. 26APCh. 15 - Prob. 27APCh. 15 - Refer to the facts in the preceding problem Assume...Ch. 15 - Prob. 29APCh. 15 - Prob. 30APCh. 15 - Prob. 31APCh. 15 - Prob. 32APCh. 15 - Prob. 33APCh. 15 - Prob. 34APCh. 15 - Prob. 35APCh. 15 - Prob. 36APCh. 15 - Prob. 37APCh. 15 - Prob. 38APCh. 15 - Prob. 39APCh. 15 - Prob. 40APCh. 15 - Prob. 41APCh. 15 - Prob. 1IRPCh. 15 - Prob. 2IRPCh. 15 - Prob. 3IRPCh. 15 - Prob. 4IRPCh. 15 - Prob. 5IRPCh. 15 - Prob. 6IRPCh. 15 - Prob. 7IRPCh. 15 - Prob. 8IRPCh. 15 - Prob. 9IRPCh. 15 - Prob. 10IRPCh. 15 - Prob. 11IRPCh. 15 - Prob. 12IRPCh. 15 - Prob. 13IRPCh. 15 - Prob. 14IRPCh. 15 - Prob. 15IRPCh. 15 - Prob. 1RPCh. 15 - Prob. 2RPCh. 15 - Prob. 3RPCh. 15 - Prob. 4RPCh. 15 - This year, Mr. Joss accepted a job with BL Inc. He...Ch. 15 - Mr. Remling is entitled to a 5,200 bonus this year...Ch. 15 - Prob. 3TPCCh. 15 - Prob. 4TPC
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Rhonda plans to start saving for retirement and has the option of choosing between two investment opportunities. Option One: Invest $6,000 per year from ages twenty-five through thirty-two (a total of 8 investments) into an account, and then leave it untouched until she is sixty-five years old (33 years). Option Two: Depositing $6,000 into an account every year beginning at age thirty-three until Rhonda is sixty-five years old (a total of 33 investments). Each account earns an average of 11.25% per year. (The investments are end-of-year payments) Which of the two options presented above will result in a greater future value by the time Rhonda reaches sixty-five years old? b. Rhonda is planning to expand her investment portfolio. Her friend Martha owns a British CONSOL that pays $205 per year forever and has a discount rate of 8.25% per year. Martha wants to liquidate her investment and offers to sell Rhonda all but 25 cash flows (the first to be received one year from today) for $650.…arrow_forwardRhonda plans to start saving for retirement and has the option of choosing between two investment opportunities. Option One: Invest $6,000 per year from ages twenty-five through thirty-two (a total of 8 investments) into an account and then leave it untouched until she is sixty-five years old (33 years) Option Two: Depositing $6,000 into an account every year beginning at age thirty-three until Rhonda is sixty-five years old (a total of 33 investments). Each account earns an average of 11.25% per year. (The investments are end-of-year payments) Which of the two options presented above will result in a greater future value by the time Rhonda reaches sixty-five years old?arrow_forwardJoanna is making a financial plan for her retirement. Today is her 35th birthday, and she receives $150,000 from her grandmother's will. She plans to retire 25 years from now when she turns 60. Once she is retired, she will need to withdraw $4,000 a month for 15 years, starting on the day she retires. She anticipates earning 6% compounded semi-annually for the entire 40 years. How much of her inheritance money must be invested today to meet her retirement goal?arrow_forward
- Rhonda plans to start saving for retirement and has the option of choosing between two investment opportunities. Option One: Invest $6,000 per year from ages twenty-five through thirty-two (a total of 8 investments) into an account and then leave it untouched until she is sixty-five years old (33 years) Option Two: Depositing $6,000 into an account every year beginning at age thirty-three until Rhonda is sixty-five years old (a total of 33 investments). Each account earns an average of 11.25% per year. (The investments are end-of-year payments) Which of the two options presented above will result in a greater future value by the time Rhonda reaches sixty-five years old? b. Rhonda is planning to expand her investment portfolio. Her friend Martha owns a British CONSOL that pays $205 per year forever and has a discount rate of 8.25% per year. Martha wants to liquidate her investment and offers to sell Rhonda all but 25 cash flows (the first to be received one year from today) for $650. In…arrow_forwardMary plans to make the following contributions to her retirement account: $10,000 for each of the next ten years, and $12,000 for each of the ten years after that. If her savings earn 5%, how much will she have at the end of the 20 years. Ignore taxes and assume that the contributions are made at the end of the year.arrow_forwardMeredith, who is single, would like to contribute $6,000 annually to her Roth IRA. Her AGI is $125,000. 1. What is the maximum amount that Meredith can contribute? Show your calculations using Microsoft Excel. 2. Assume that Meredith’s AGI is $100,000. She plans to put $6,000 each year into her Roth IRA, hoping to earn 6% annually. What future value will accumulate in her Roth at the end of 20 years? 3. In part (b), instead assume that Meredith puts the $6,000 into the Roth for 15 years at 6%. How much will accumulate at the end of this period?arrow_forward
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