Here are 2 discussion questions, for each one, 1-2 references, cite in apa 7th format, make sure the similarity of Turnitin report is under 15%!!!
- After you graduate from college and start your professional career, you will need to consider investing for your retirement. A 401(k) plan is a retirement plan offered by many companies. Such plans are tax-deferred savings vehicles, meaning that any deposits you make into the plan are deducted from your current pretax income, so no current taxes are paid on the money. For example, assume your salary will be $50,000 per year. If you contribute $3,000 to the 401(k) plan, you will pay taxes on only $47,000 in income. There are also no taxes paid on any capital gains or income while you are invested in the plan, but you do pay taxes when you withdraw money at retirement. As is fairly common, the company also has a 5% match. This means that the company will match your contribution up to 5% of your salary, but you must contribute the amount that you want matched, up to the maximum.
The 401(k) plan has several options for investments, most of which are mutual funds. A mutual fund is a portfolio of assets. When you purchase shares in a mutual fund, you are actually purchasing partial ownership of the fund’s assets. The return of the fund is the weighted average of the return of the assets owned by the fund, minus any expenses. The largest expense is typically the management fee, paid to the fund manager. The management fee is compensation for the manager, who makes all of the investment decisions for the fund.
Consider the following questions based on the history of capital markets.
- What advantages do mutual funds offer compared to the company stock?
- Assume that you invest 5 percent of your salary and receive the full 5 percent match from your employer. What EAR do you earn from the match? What conclusions do you draw about matching plans?
- Review “Mini Case: The MBA Decision” Then, answer the following questions:
Ben Bates graduated from university six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry University. Although internships are encouraged by both schools, to get class credit for the internship no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA programme.
Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is £50,000 per year, and his salary is expected to increase at 3 per cent per year until retirement. He is currently 28 years old and expects to work for 35 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 per cent. Ben has a savings account with enough money to cover the entire cost of his MBA programme.
The Draper College of Business at Wilton University is one of the top MBA programmes in the country. The MBA degree requires two years of full-time enrolment at the university. The annual tuition is £60,000, payable at the beginning of each school year. Books and other supplies are estimated to cost £2,500 per year. Ben expects that after graduation from Wilton he will receive a job offer for about £95,000 per year, with a £15,000 signing bonus. The salary at this job will increase at 4 per cent per year. Because of the higher salary, his average income tax rate will increase to 31 per cent.
The Bradley School of Business at Mount Perry University began its MBA programme 16 years ago. The Bradley School is smaller and less well known than the Draper College. Bradley offers an accelerated, one-year programme, with a tuition cost of £75,000 to be paid upon matriculation. Books and other supplies for the programme are expected to cost £3,500. Ben thinks that he will receive an offer of £78,000 per year upon graduation, with a £10,000 signing bonus. The salary at this job will increase at 3.5 per cent per year. His average tax rate at this level of income will be 29 per cent.
Both schools offer a discounted health insurance plan that will cost £3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost £20,000 per year at either school. The appropriate discount rate is 6.5 per cent.
1How does Ben’s age affect his decision to get an MBA?
- What other, perhaps non-quantifiable factors affect Ben’s decision to get an MBA?
- Assuming all salaries are paid at the end of each year, what is the best option for Ben – from a strictly financial standpoint?
- Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
- What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?
- Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 per cent. How would this affect his decision?
