You Would Like to Have Enough Money Saved After Your

question 28

Multiple Choice

You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity. How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement. The annual interest rate is 12.5 percent.)

• A)$1,000,000
• B)$10,000,000
• C)$800,000
• D)$1,125,000

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Definitions:

Gross Amount

The total sum before any deductions are made, such as taxes or discounts.

Merchandise

Merchandise encompasses the goods and products that a retail business purchases to then sell to its customers.

Lower of Cost

An accounting principle requiring that inventory be recorded at the lower of its historical cost or market value if the market value drops below cost.

Net Realizable Value

The estimated selling price in the ordinary course of business, minus the estimated costs of completion and the estimated costs necessary to make the sale.