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Homework answers / question archive / 1) Given the following information, calculate the desired before-tax profit: tax rate 25%; desired after-tax profit $12,000; contribution margin 1 50%
1) Given the following information, calculate the desired before-tax profit: tax rate 25%; desired after-tax profit $12,000; contribution margin 1 50%.
A $6,000 B. 58,000 C. $12,000 D. 16.000
2)
Johanna made equal payments at the end of each month into her RRSP. If interest in her account is 10.7?% compounded semi-annually?, and the balance after six years is $15,500?,
what is the size of the monthly payment?
1)
Computation of Desired Before-tax Profit:
Desired Before-tax Profit = Desired After-tax Profit/(1-Tax Rate)
= $12,000/(1-25%)
= $12,000/75%
Desired Before-tax Profit = $16,000
So, the correct option is D "$16,000".
2)
Computation of Size of Monthly Payment using PMT Function in Excel:
=pmt(rate,nper,-pv,fv)
Here,
PMT = Monthly Payment = ?
Rate = 10.99%/12 = 0.92% compounded monthly
Nper = 6 years * 12 months = 72 months
PV = 0
FV = $15,500
Substituting the values in formula:
=pmt(0.92%,72,0,-15500)
PMT or Monthly Payment = $153.01
Workings:
Computation of Effective Annual Rate:
Effective Annual Rate = (1+i/n)^n -1
= (1+10.7%/2)^2 -1
Effective Annual Rate = 10.99%
