Case Study£ºmacmillan and Grunski Consulting
3589 words 15 pagesIntroductory Overview
The group project, Macmillan and Grunski Consulting, consists of two sections. The first part explains the case about discounted cash flow analysis, by answering the given nine questions. The second part discusses the retirement planning.
Sandra Macmillan, one of the founders of Macmillan and Grunski Consulting which provides financial planning services, is now giving a short project to Mary Somkin, the firm¡¯s top secretary. If she can successfully demonstrate her ability and skill of discounted cash flow (DCF) analysis, one of the most important concepts in financial planning, she can expand her role in the firm and broaden her job opportunity.
The project was an actual analysis for Sandra¡¯s …show more content…
(d) Obviously, no matter which type of interest compounding is offered, the investors will fail to reach their expectancy if they only plan to invest $3,000 annually for the next 6 years. Then how much do they need to pay in order to accumulate $35,000 under annual compounding if other conditions remain unchanged? The result can be achieved according to the following equation. So,
The clients have to pay $1,723 more for each to acquire $35,000 at the end of sixth years.
(e) The ending value in part b is $22,231, and the discount rate in this case equals to the bank¡¯s nominal annual interest rate¡ª8.4%, as a result, the present value can be calculated according to the following formula: This present value, in fact, equals to the lump sum, if deposited today, that would produce $22,231 after six years.
(f) An annuity equation is directly applicable only when the payment periods correspond to the compounding period. If not, some rate conversion must be made prior to the usage of relevant formula. If the investment is paid semiannually, the interest remains to be compounded annually, then the corresponding semiannual periodic rate (Is) must be calculated first in order to utilize the standard annuity procedures. And the interest produced by this semiannual periodic rate must be equivalent to that produced by the nominal annual rate (INom) within the same