(Answer All) label each question

  1. Time Value of Money
    Solution

PV of CF = $300 / (1+0.06)^1 + $300 / (1+0.06)^2 + $500 / (1+0.06)^3 + $600 / (1+0.06)^4 + $1,200 / (1+0.06)^5

PV of CF=$283.02 +$267.00 +$419.81 +$475.27 + $896.71

Present Value of Cash Flows = $2,341.81

Therefore, Darlene should pay $2,341.81 for this investment if she can earn 6 percent on her investment.

If she can only obtain an interest rate of 2.45%, the answer will change as below:

PV of CF = $300 / (1+0.0245)^1 + $300 / (1+0.0245)^2 + $500 / (1+0.0245)^3 + $600 / (1+0.0245)^4 + $1,200 / (1+0.0245)^5

PV of CF=$292.83 +$285.82 +$464.98 +$544.63 + $1063.22

Present Value of Cash Flows = $2,651.48

This implies that the answer will increased to $2,651.48 from $2,341.81 after the change in interest.

  1. Financial Planning.
    Retirement Planning – it is the allocation of revenue or savings for retirement and hence need information such as an attainable savings, investment or financial plan and a long-term commitment (Bhat, 2008).
    Estate Planning – in order to have an effective estate plan, one needs to provide personal and family information; personal and family financial assets such personal and household effects, pension and profit sharing plans, life insurance, investment assets; interests of current or future value; personal estate planning objectives; and guardians, executors and trustees (Chandra, 2011).
    Risk Management – effective risk management requires information such as the risks, the causes of the risks, the controls of the risks, the likelihood and consequences of the descriptors, the risk rating descriptors, additional risk controls, and contingency plan for risks (Megginson & Smart, 2009).
    Employee Benefits– in order to arrive at the employee benefits, they need to gather information on the compensation packages of a company, both wage and non-wage compensation on top of the normal salaries and wages (Bhat, 2008).

Family Planning – the data requirements include the number of children one needs, the age gap between conception, the contraceptive methods, the planning status, woman’s current fecundity, and the desire for additional children (Chandra, 2011).

Educational Planning – it needs gathering of information such as the cost of education, amount of money available to save, payment options- fixed or flexible, time requirement, data on student, economic data such as inflation and data on situation of education (Megginson & Smart, 2009).

  1. Personal vs. Corporate.
    Income-

Household income is the total income for all household members aged 15 years or older subject to income taxes while business income is income realized from business activity subject to corporate taxation. Incomes for both household and business financial processes are used in funding daily operations (Bhat, 2008).
Expenses

Expense for household refers to per person breakdown of general living costs while expense for business financial services is deductible costs incurred in the ordinary course of the business. Both expenses for household and business financial processes are deductible from the income (Chandra, 2011).

Cash flows after maintenance expenses

Cash flows after maintenance expenses for both household and business financial processes refer to the cash flows after carrying out maintenance activities. However, Cash flows after maintenance expenses for household is cash flow remaining after bettering household equipment while cash flows for business financial processes is a real cash flow out from the business as it keeps capital assets running at peak efficiency (Megginson & Smart, 2009).

Additions to investments

Addition to investments to households refers to the increase in the household’s items or assets that generate income or will appreciate in value in the future. Addition to investments for business financial processes refers to a rise in the costs involved in acquiring or adding new assets or improving the existing assets within a business. For business financial processes, additions to investments increase the useful life and production of the company (Bhat, 2008).
Leisure outlays

Leisure outlays for households refers to total expenditure incurred in family holidays such as eating out, watching movies and shopping for non-necessities while leisure outlays for  business financial processes refers to all non-work, non-overhead related items expenditures such as taking employees on vacation or paid holidays. Both are expenses and reduce the income (Chandra, 2011).

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