Essay Assignment Your Assignment is to write an essay discussing how you, as a business owner, can use annuities to achieve business goals. Financial decisions require careful planning and prioritizing, especially when large, capital-intensive purchases are involved. As you establish a process to achieve your company goals, you will need to demonstrate your math skills, consider different investment options, and describe how different investment vehicles can be used effectively to accomplish business goals. Scenario: As the owner of a vinyl fencing company, you are making plans for two large purchases in the next 3 to 5 years to achieve your business goals.
Essay Assignment Your Assignment is to write an essay discussing how
you, as a business owner, can use annuities to achieve business goals.
Financial decisions require careful planning and prioritizing,
especially when large, capital-intensive purchases are involved. As you
establish a process to achieve your company goals, you will need to
demonstrate your math skills, consider different investment options, and
describe how different investment vehicles can be used effectively to
accomplish business goals. Scenario: As the owner of a vinyl fencing
company, you are making plans for two large purchases in the next 3 to 5
years to achieve your business goals. Purchase 1: You plan to expand
your vinyl fence company in the future, and must purchase a new
warehouse facility to achieve this goal. Your insurance company is
offering you two very attractive investment options, an ordinary annuity
and an annuity due, both compounding quarterly and paying 8% annual
interest over a 5-year period. Your 5-year budget includes saving
$2,500.00 each quarter. To evaluate which option will benefit the
business most, you must evaluate both annuity options by calculating the
future value of each option and explain how the investment will help
you to carry out your goals. Purchase 2: After careful review of your
maintenance log, you also realized that you will need to replace a fence
post molding machine that sells for $45,000.00. You estimate that you
will need to purchase a new machine in 3 years’ time as this machine
reaches the end of its useful life. You plan to save for this purchase
using a sinking fund that compounds semi-annually, and earns a 12%
annual rate. Your essay should in include the following information 1.
Calculate the future value of both the ordinary annuity and the annuity
due options being offered by your insurance company. Explain the
differences between these two investment options. Select the best
annuity option for your business and explain why that option is
preferable. 2. Calculate the sinking fund payment required for the fence
post molding machine. 3. Compare and contrast the shorter timeframe and
higher interest rate of the sinking fund with the longer term warehouse
annuity option you chose. Be sure to calculate and report how much
interest you will earn from the annuity chosen for the warehouse and the
amount of the sinking fund investment. 4. Develop a plan to prioritize
these two purchases, and discuss the potential impact that these will
have on the future of your business. For example, is expanding your
business more important than saving for and paying cash for a fence post
molding machine? Remember, you could borrow money to finance the fence
post molding machine when it eventually breaks, but financing will cost
the business in finance charges. Remember, this Assignment is worth 40
points so it should be complete and cover each point as outlined above.
Be sure to include at least one APA formatted reference.
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