Assume That You Are Graduating,that You Plan to Work for 4

question 29

Multiple Choice

Assume that you are graduating,that you plan to work for 4 years,and then to go to law school for 3 years.Right now,going to law school would require $17,000 per year (for tuition,books,living expenses,etc. ) ,but you expect this cost to rise by 8 percent per year in all future years.You now have $25,000 invested in an investment account which pays a simple annual rate of 9 percent,quarterly compounding,and you expect that rate of return to continue into the future.You want to maintain the same standard of living while in law school that $17,000 per year would currently provide.You plan to save and to make 4 equal payments (deposits) which will be added to your account at the end of each of the next 4 years;these new deposits will earn the same rate as your investment account currently earns.How large must each of the 4 payments be in order to permit you to make 3 withdrawals,at the beginning of each of your 3 years in law school? (Note: (1) The first payment is made a year from today and the last payment 4 years from today, (2) the first withdrawal is made 4 years from today,and (3) the withdrawals will not be of a constant amount. )

• A) $13,242.67
• B) $6,562.13
• C) $10,440.00
• D) $7,153.56
• E) $14,922.85

---

Definitions:

Long-Term Debt

Borrowings and financial obligations that are due for repayment beyond one year's time, often used for major investments or acquisitions.

Profit Margins

Financial ratios that measure the percentage of profit a company generates from its revenues, indicating the efficiency at which a company converts sales into profits.

Asset Turnover Ratios

Asset turnover ratios measure how efficiently a company uses its assets to generate sales, indicating operational efficiency.

Financing Policies

These are strategies that a company formulates for managing its finances, including decisions on debt, equity, and internal financing methods.