Question: Beyond the will, what does estate planning

> Katie paid $9,400 for a Ginnie Mae bond with a par value of $10,000 and a coupon rate of 6.5%. Two years later, after having received the annual interest payments on the bond, Katie sold the bond for $9,700. What are her total tax consequences if she is

> Bonnie paid $9,500 for corporate bonds that have a par value of $10,000 and a coupon rate of 9%, payable annually. Bonnie received her first interest payment after holding the bonds for 11 months and then sold the bonds for $9,700. If Bonnie is in a 35%

> Nancy and Al have been planning their retirement since they married in their early 20s. In their mid-40s and with two children in college, they are finding it harder to save and fear they will fall short of the savings needed to reach their retirement go

> Lisa and Mark married at age 22. Each year until their 30th birthdays, they put $4,000 into their traditional IRAs. By age 30, they had bought a home and started a family. Although they continued to make contributions to their employer-sponsored retireme

> In need of extra cash, Troy and Lilly decide to withdraw $8,000 from their traditional IRA. They are both 40 years old. They are in a 25% marginal tax bracket. What will be the tax consequences of this withdrawal?

> Tilly would like to invest $2,500 in before-tax income each year in a retirement account or in stock investments outside the retirement account. Tilly likes the stock investments outside the retirement account because they provide her with more flexibili

> How much will Marie have in her retirement account in 10 years if her contribution is $7,000 per year and the annual return on the account is 6%? How much of this amount represents interest?

> Chris purchased a call option on a stock for $200. The option gives him the right to purchase the stock at $30 per share until May 1. On May 1, the price of the stock is $28 per share. What is Chris’s return on the stock option?

> Carlos purchased 100 shares of stock in Company Alpha for $21 a share. He recently sold a call on the stock for $1.50 a share with a strike price of $40. The stock has since increased in price to $42 per share. How much will Carlos make on this stock if

> Paul has $10,000 that he wishes to invest in bonds. He can purchase Treasury bonds with a coupon rate of 7% or municipal bonds with a coupon rate of 5.5%. Paul lives in a state with no state income tax and has a marginal tax rate of 25%. Which investment

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves

> What is the main advantage of retirement planning?

> What is a profit sharing plan? What are the contribution limits for profit sharing plans?

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing.

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employerâ

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti

> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical

> Judy has just received $12,500 as an inheritance from her uncle and is considering ways to use the money. Judy’s car is one-year-old, and her monthly payment is $304. She owes 48 more payments. The amount to pay off the loan is $12,460. How much will Jud

> Miguel, a recent 22-year-old college graduate, wants to retire a millionaire. How much will he need to set aside annually to achieve his goal, assuming he plans to retire at age 67 and he can earn an 8% annual return on his investment?

> Judy believes that another benefit of investing the extra $3,648 in her employer sponsored retirement plan is the tax savings. Judy is in a 25% marginal tax bracket. How much will investing in this manner save her in taxes annually? Assuming she remains

> Judy pays off her car loan and now must decide how she wants to invest the extra $3,648 per year that she budgeted for car payments. She decides to invest this additional amount in her employer-sponsored retirement plan. Currently, the plan is averaging

> Explain how excessive spending can prevent effective financial planning.

> How does life insurance protect your wealth? Who needs life insurance?

> How does purchasing car insurance and homeowner’s insurance help protect and maintain your wealth?

> In the previous question, you decide to pay off the car loan and invest the difference. Now you no longer have a $350 per month car payment. Suggest some ways you might use these additional funds.

> How does time affect your financial plan?

> Why is it important to integrate the components of your financial plan?

> Explain why having very specific goals is important for financial planning.

> How does budgeting fit into your financial plan? How is your financial plan affected by your spending? What is the budgeting trade-off?

> Why is it important to keep financial records stored in a safe location? List some important documents that you should keep in a safe place.

> Why is it important to track your expenditures for a few months? How does this practice impact your budget?

> How does purchasing sufficient health insurance and disability insurance help protect and maintain your wealth?

> You have some extra cash in your budget that you wish to invest. You have narrowed your choices to a single stock, Treasury bonds, or stock mutual funds. What characteristics of each investment alternative should you consider in making your decision?

> You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You can put the money in a money market account at your bank and pay off your car loan, or you can invest the money in mutual funds. Wha

> What do you think happens to your budget when your financial position changes?

> Discuss some methods for maintaining and protecting your wealth. What is the insurance trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?

> Discuss how managing liquidity fits into your financial plan. What is the liquidity trade-off?

> Judy (from problem 1) is also considering investing the $12,500 in a certificate of deposit (CD). She is guaranteed a return of 4% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return? Data from

> Referring to the previous question, what other factors should Miguel consider with regard to his retirement goal? What recommendation would you give Miguel regarding his goal? Data from Question 5: Miguel, a recent 22-year-old college graduate, wants t

> What is a beneficiary? Why is it important to be specific with regard to beneficiaries and assets in your will?

> How can contributions to charitable organizations help in estate planning?

> What is an irrevocable living trust?

> Jill just inherited $7 million from her grandfather in 2015. How much of the inheritance is subject to estate tax?

> What is a revocable living trust? How can a revocable living trust be used to help your estate? How does a revocable living trust affect estate taxes?

> What is a trust? What is the difference between a living trust and a testamentary trust?

> Why is it important to calculate the value of your estate periodically?

> Discuss estate taxes. When is an estate subject to and not subject to estate taxes? What is the top federal estate tax rate? What other taxes may be levied against an estate?

> What is probate? Describe the probate process.

> When would you change your will? How can your will be changed?

> List and briefly discuss the key components of a will.

> Describe two common types of wills.

> List the requirements for a valid will

> What is a will? Why is a will important? What happens if a person dies without a will?

> What is an estate? What is estate planning? What is the main goal of estate planning?

> In the nineteenth century, people traveled the country selling tonics that were guaranteed to cure all the ailments of humankind. In the twenty-first century, the “snake oil salesmen” have been replaced with individuals making professional presentations

> Lisa has an estate worth $3.21 million and three children who will receive her assets on her death. Should she create a will give that her estate is worth less than the $5.43 million threshold that is exempt from estate taxes?

> How can you use annual gifts to reduce the tax burden on your heirs?

> What is an executor? Why is it important to name an executor in your will?

> How should estate plan documents be maintained?

> What is a durable power of attorney for health care? Why is it needed even if you have a living will?

> What is a power of attorney?

> What is a living will? What are its implications for estate planning?

> How do gifts fit into estate planning?

> What is a standard family trust? Give an illustration.

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend

> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves

> In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?

> Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.

> Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

> Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 mil

> Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?

> Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million ne

> The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm’s management that they must price the new issue to the public at $22 per share because of signaling effects. The underwrite

> On March 1, Minnerly Motors obtains a business loan from a local bank. The loan is a $25,000 interest-only loan with a nominal rate of 11%. Interest is calculated on a simple interest basis with a 365-day year. What is Minnerly’s interest charge for the

> A computer costs $500 in the United States. The same model costs 550 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?

> Breuer Investment’s convertible bonds have a $1,000 par value and a conversion price of $50 a share. What is the convertible issue’s conversion ratio?

> The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the disco

> Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. a. 1/15, net 20 b. 2/10, net 60 c. 3/10, net 45 d. 2/10, net 45 e. 2/15, net

> A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. Wh

> A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer’s effec

> Medwig Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each day. What is the company’s average accounts receivable?

> In the spot market, 7.8 pesos can be exchanged for 1 U.S. dollar. A pair of headphones costs $15 in the United States. If purchasing power parity holds, what should be the price of the same headphones in Mexico?

> What is and how did Modigliani and Miller use the arbitrage concept in developing their theory that (with no corporate taxes) capital structure has no effect on value or the cost of capital? What real-world impediments exist to creating one’s own “homema

> MM and Miller also assumed that debt is riskless. How does the possibility of default on debt cause equity to take on the characteristics of an option? What types of incentives for shareholders does this lead to?

> In what circumstances is the compressed adjusted present value (APV) model useful and how would it be applied?

> What is the compressed adjusted present value (APV) model and how does this differ from the Modigliani and Miller models? (Hint: think of the discount rate on the tax shield. What is “compressed” about this model?)

> MM and Miller assumed that firms do not grow. If they grow, how would this affect the value of the debt tax shield? What does growth do to the required rate of return on equity and the WACC as a firm increases its use of debt?

> What is the essence of Miller’s contribution to the theory of capital structure, and how does it relate to the earlier MM with-taxes position?

> Define each of the following terms: a. Liquidity ratios: current ratio; quick, or acid test, ratio b. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO); fixed assets turnover ratio; total assets turnover ratio c. Financial l

> Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?

> How might (a) seasonal factors and (b) different growth rates distort a comparative ratio analysis? Give some examples. How might these problems be alleviated?