You are 40 years old and plan to retire in exactly 20 years. Starting 21 years from now you will need to with draw $5,000 per year from your retirement fund to supplement your social security payment. If you expect to live to age eighty-five how much should you place in the retirement fund each year for the next 20 years to reach your retirement goal, assuming you can earn 12% per year on your retirement fund investment? Please Show formulas and input so that I can understand.

Taken from TIAA CREF.org website (Teacher's Insurance & Annuity Assoc, College Retirement Equities Fund),



Compute how much you'll need to save to reach a future income goal. The income calculation assumes systematic withdrawals that exhaust your principal and accrued earnings over the specified payout period. If you want a lump-sum amount rather than income over time, enter 1 in the Duration field.

Annual income goal in constant (i.e. inflation-adjusted) dollars $

Years to save

Duration (for how many years do you need income?)

Initial investment $

Assumed annual investment return* %

Inflation rate %

Average annual contribution increase, if any %

You need to invest or save $ 98,539
... once a month: $ 107
... or once a year: $ 1,284
... or more as an initial investment: $ 10,215


All calculations assume beginning of the month investment. The result shown does not reflect returns from an actual investment.



* If not held in a tax-deferred plan, use after-tax rate of return.

The following tabulation gives earnings per share figures for the Foust Company during the
Preceding 10 years. The firm’s common stock, 7.8 million shares outstanding, is now (1/1/03)
Selling for $65 per share, and the expected dividend at the end of the current year (2003) is
55 percent of the 2002 EPS. Because investors expect past trends to continue, g may be based
On the earnings growth rate. (Note that 9 years of growth are reflected in the data.)
YEAR EPS YEAR EPS
1993 $3.90 1998 $5.73
1994 4.21 1999 6.19
1995 4.55 2000 6.68
1996 4.91 2001 7.22
1997 5.31 2002 7.80
The current interest rate on new debt is 9 percent. The firm’s marginal tax rate is 40 percent.
Its capital structure, considered to be optimal, is as follows:
Debt $104,000,000
Common equity 156,000,000
Total liabilities and equity $260,000,000
a. Calculate Foust’s after-tax cost of new debt and common equity. Calculate the cost of equity
As ks  D1/P0  g.
b. Find Foust’s weighted average cost of capital.

mary will receive 12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?