Need help solving these finance questions?

PV = C/r PV= C/r-g P= D/r-g

1st: Tom is 30 years old today. His salary next year will be $20,000. He forecasts salary growth of 5%/year and plans to retire at 60.
1) If the discount rate is 8%, what is the PV of his future salary receipts?
2) He plans to save 5% of his salary each year and invest it at 8%. Once retired, he plans to spend it evenly over the next 20 yrs. How much will be able to spend?
3) What if the amount spend in retirement grows at 3%/year. What would be the amount withdrawn in the first year?

2nd: You plan to make a series of deposits in an individual retirement account. You will deposit $1,000 today, $2,000 in year 2, and $2,000 in year 5. If you withdraw $1,500 in year 3 and $1,000 in year 7, assuming no withdrawal penalties, how much will you have after 8 years if the interest rate is 7%? What is the present value of these cash flows?

Company for analysis: John Deere


SITUATION

You are a financial analyst with the mythical High Technology Corporation ("HTC"). HTC is an established manufacturer of a line of electronic components for industrial-use machinery, which services an international market. A competitive technical and economic product evaluation has determined that John Deere (a real publicly-traded company) is the best potential candidate for a long-term commitment. John Deere is offering a competitively favorable deal. However, based on some serious general and economic concerns about the fallout of companies in the industry in general, the CEO has asked your CFO to conduct a financial analysis of John Deere to determine if it is prudent to commit to this company's product line. The cost of cutting over to the new product line is significant and any interruption in support during the next few years would adversely affect HTC's performance and profit. Specifically, the question is: will a commitment to John Deere be financially viable over the next two to three years?



YOUR SPECIFIC ASSIGNMENT

Your specific assignment is to research, analyze, and prepare a report for the CFO on the actual financial performance of John Deere for the last three years. In addition to reviewing the traditional financial performance indicators, you are also to review John Deere's past and current stock performance for the last one year. Your report is to consist of three parts:

(1) An evaluation of John Deere's financial performance for the last three years.

(2) An evaluation of John Deere's stock performance for the last one year.

(3) Finally, a specific recommendation, with supporting rationale, as to whether or not John Deere's recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment.

To assist you in your task, the CFO has provided the following general guidance. Since it is recognized that the industry is undergoing a major contraction in selected markets, it is very important to comparatively evaluate John Deere's financial and stock performance trends against its Industry.

You may wish to include all necessary and relevant financial performance and stock information, trends, and projections in supporting your recommendation. These factors may include, financial ratio trends and industry comparatives, capital spending, stock growth, Beta values, credit rating service valuations, bond rating valuations, and management and investment reports - when these documents are available.

REPORT REQUIREMENTS

YOUR SPECIFIC ASSIGNMENT

Research and analyze the following information for John Deere:

Annual Balance Sheets for the last three years.


The Income Statements for the last three years.


Annual reports, 10K or 10Q


Industry data


Analysts’ reports on performance


Management reports or press releases


Using this information the students have to develop evaluation of the financial performance for John Deere. (Totally 85% of the assignment grade)
1.
Background and Industry (one short paragraph).

2.
Select of most significant financial performance results for the company: Compare Revenue, net income, working capital, total assets for the last three years and other results of your choice of the company against the industry or main competitor. Present the table with this information in your report. Write about 1 page of the analysis of these financial performance results. (15% of the project grade)

3.
Find financial ratios for the company and its major competitor in the Internet. Write about 1-2 pages of analysis of the ratio results you received. (15% of the project grade). Compare the ratio results against the industry or main competitor.

4.
Evaluate Return on Equity for the company for the last three years using the DuPont analysis. (10% of the project grade). Compare the company’s results to a major competitor.

5.
Taking the information from the Income statements and the Balance sheets, calculate the company’s return on equity using the DuPont technique for the company for three years. Follow the formulas on pages 437-438 of the textbook. Show your calculation!

6.
Write about 1 page of analysis of the results that you received. Compare the results to main competitor. If the management of the company would like to improve their return on equity, what should the management of these companies do?

7.
Evaluate other areas of financial analysis: capital spending, stock growth, Beta values, credit rating service valuations (if possible), bond rating valuations (if possible), etc. Make an overall conclusion about financial performance of the company during the last years. Compare the results that you received against the industry or main competitor. Summarize the results that you received in 1 pages. What are the firm’s financial strengths and weaknesses? (10% of the project grade)

8.
Collect and evaluate the data about stock performance of the assigned company's for the last one year. Compare the results that you received against the industry or main competitor.

9.
Write about 1 page of analysis of the ratio results you received. (20% of the project grade).

10.
Develop a specific recommendation, with supporting rationale, as to whether or not the assigned company's recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment. (about 1 page) (15% of the project grade)


To what amount will the following investment accumulate? $855, invested today for 40 years at 3 percent, compounded annually. Round the answer to two decimal oplaces.

Sure, I can help you solve these finance questions. Let's go through them step by step.

For the first question:

1) To find the present value (PV) of Tom's future salary receipts, we can use the formula PV = C/r, where C is the cash flow (salary) and r is the discount rate.

Given:
C = $20,000 (Tom's salary next year)
r = 8% (discount rate)

Using the formula, we can calculate the PV as follows:
PV = $20,000 / 0.08 = $250,000

Therefore, the present value of Tom's future salary receipts is $250,000.

2) Tom plans to save 5% of his salary each year and invest it at 8%. He will spend it evenly over the next 20 years after retirement. To calculate how much he will be able to spend, we need to calculate the future value (FV) of his savings.

Given:
C = $20,000 (Tom's salary next year)
r = 8% (investment rate)
g = 3% (salary growth rate)
n = 20 (number of years in retirement)

Using the formula PV = C/r-g, we can calculate the PV of Tom's savings:
PV = $20,000 / (0.08 - 0.05) = $20,000 / 0.03 = $666,666.67 (approx.)

Now, we can calculate the FV of Tom's savings:
FV = PV * [(1 + r)^n - 1] / r
= $666,666.67 * [1.08^20 - 1] / 0.08
≈ $5,718,122.06 (approx.)

Therefore, Tom will be able to spend approximately $5,718,122.06 evenly over the next 20 years after retirement.

3) If the amount spent in retirement grows at 3% per year, we need to calculate the amount withdrawn in the first year using the formula P = D/r-g, where P is the principal amount (withdrawal), r is the discount rate, and g is the growth rate.

Given:
P = ?
r = 8% (discount rate)
g = 3% (growth rate)

Using the formula, we can calculate the principal amount (P) as follows:
P = D / (r - g)
= $5,718,122.06 / (0.08 - 0.03)
= $5,718,122.06 / 0.05
≈ $114,3624.41 (approx.)

Therefore, the amount withdrawn in the first year would be approximately $114,3624.41.

For the second question:

To calculate how much you will have after 8 years and the present value of these cash flows, we can use the concept of present value (PV) and future value (FV).

Given the cash flows:
- Deposit $1,000 today
- Deposit $2,000 in year 2
- Deposit $2,000 in year 5
- Withdraw $1,500 in year 3
- Withdraw $1,000 in year 7

The interest rate is 7%.

To calculate the future value (FV), we can add up the individual cash flows and compound them using the interest rate.

FV = $1,000 * (1 + 0.07)^8 + $2,000 * (1 + 0.07)^6 + $2,000 * (1 + 0.07)^3 - $1,500 * (1 + 0.07)^5 - $1,000 * (1 + 0.07)
≈ $12,886.84

Therefore, after 8 years, you will have approximately $12,886.84.

To calculate the present value (PV) of these cash flows, we need to discount each cash flow back to today.

PV = $1,000 / (1 + 0.07)^1 + $2,000 / (1 + 0.07)^2 + $2,000 / (1 + 0.07)^5 - $1,500 / (1 + 0.07)^3 - $1,000 / (1 + 0.07)^7
≈ $7,995.03

Therefore, the present value of these cash flows is approximately $7,995.03.

I hope this explanation helps you to understand how to solve these finance questions. Let me know if you need further assistance!