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Sandra Gilbert, Retiree Case 12
Time Value of Money
Purpose: The case provides the student to a very important issue in the age of baby boomers. Although
retirement is not an issue directly affecting students, it is one in which they are likely to be called on for
advice by parents and relatives. For those students who become financial planners, the case will have
particular importance.
Relation to Text: The case should follow Chapter 9.
Complexity: The case is relatively straightforward and should require 30-45 minutes.
Solutions
1. Retirement Funds $400,000
2. Annual Funds $35,000
Tax Rate 15%
Taxes $5,250
3. Annual Funds $31,000
Tax Rate 15%
Taxes $4,650
4. Initial Payout $200,000
Plus
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
5. Option 2 has the highest NPV.
6. Option 2
A/T Income $29,750
Option 3
A/T Income $26,350
The lower discount rate favors the longer-term option (Option 3).
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
