Financial Management

The article discusses the analysis of investment options and retirement planning in Financial Management. The first question analyzes the financial viability and profitability of two options, while the second question estimates the amount that would be in the account at the age of 65 during the retirement age. The article concludes that receiving a lump sum option should be considered as the best and desirable option for the purpose of investment, and the estimated amount at the age of 65 would be around $1,310,176.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
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Author’s Note:

1FINANCIAL MANAGEMENT
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................2
Reference....................................................................................................................................3
Appendix....................................................................................................................................4

2FINANCIAL MANAGEMENT
Question 1
Analysis of both the option needs to be done on the basis of financial viability and
profitability. The amount that would be received today under the lump sum case would be
around $600,000 after accounting for the prevailing taxation rate of 40% (Appendix 1).
Selection of the option would need to be based after taking a crucial factor that is time
value of money into account. In the second case for receiving 100,000 for 10 years was not
considered as a viable option as the option does not considers or takes interest into account
for the purpose of analysis (Hung, 2016). In the second case the investor would be losing
about 5% of the yearly interest rate which would result in loss for the investor in the form of
interest loss as shown in Appendix 1. Option 1 that is receiving a lump sum option should be
considered as the best and desirable option for the purpose of investment, whereby the
investor would have an opportunity of investing the $600,000 and earning 5% on a yearly
basis (Hicks, 2017).
Question 2
The amount that would be in the account at the age of 65 during the retirement age
would be around $1,310,176 which was estimated on the basis of yearly investment of 1825
($5*365 days).
If the plan would start later in life as an investment purpose then the compounding
effect would have been lower where total amount at the end of 65 years would have been
lower (Appendix 2).

3FINANCIAL MANAGEMENT
Reference
Hicks, J. R. (2017). From ‘Value and Capital’. In Bond Duration and Immunization (pp. 57-
61). Routledge.
Hung, K. C. (2016). Continuous review inventory models under time value of money and
crashable lead time consideration. Yugoslav Journal of Operations Research, 21(2).

4FINANCIAL MANAGEMENT
Appendix
1) Question 1
Time
Period PMT
Interest
Rate
Present
Value Tax Rate Net Flow
1 $1,00,000 5% 95238 40% 57143
2 $1,00,000 5% 90703 40% 54422
3 $1,00,000 5% 86384 40% 51830
4 $1,00,000 5% 82270 40% 49362
5 $1,00,000 5% 78353 40% 47012
6 $1,00,000 5% 74622 40% 44773
7 $1,00,000 5% 71068 40% 42641
8 $1,00,000 5% 67684 40% 40610
9 $1,00,000 5% 64461 40% 38677
10 $1,00,000 5% 61391 40% 36835
Total $10,00,000 $7,72,173
$4,63,30
4
Lump Sum Amount $10,00,000
Tax Rate 40%
Net Cash Flow $6,00,000

5FINANCIAL MANAGEMENT
2) Question 2
Age Annual Investment Opening Balance Interest Rate Interest Amount Cummulative Amount
22 1825 1825 10% 183 2008
23 1825 3833 10% 383 4216
24 1825 6041 10% 604 6645
25 1825 8470 10% 847 9317
26 1825 11142 10% 1114 12256
27 1825 14081 10% 1408 15489
28 1825 17314 10% 1731 19045
29 1825 20870 10% 2087 22958
30 1825 24783 10% 2478 27261
31 1825 29086 10% 2909 31994
32 1825 33819 10% 3382 37201
33 1825 39026 10% 3903 42929
34 1825 44754 10% 4475 49229
35 1825 51054 10% 5105 56160
36 1825 57985 10% 5798 63783
37 1825 65608 10% 6561 72169
38 1825 73994 10% 7399 81393
39 1825 83218 10% 8322 91540
40 1825 93365 10% 9337 102702
41 1825 104527 10% 10453 114980
42 1825 116805 10% 11680 128485
43 1825 130310 10% 13031 143341
44 1825 145166 10% 14517 159683
45 1825 161508 10% 16151 177658
46 1825 179483 10% 17948 197432
47 1825 199257 10% 19926 219182
48 1825 221007 10% 22101 243108
49 1825 244933 10% 24493 269426
50 1825 271251 10% 27125 298377
51 1825 300202 10% 30020 330222
52 1825 332047 10% 33205 365251
53 1825 367076 10% 36708 403784
54 1825 405609 10% 40561 446170
55 1825 447995 10% 44799 492794
56 1825 494619 10% 49462 544081
57 1825 545906 10% 54591 600497
58 1825 602322 10% 60232 662554
59 1825 664379 10% 66438 730817
60 1825 732642 10% 73264 805906
61 1825 807731 10% 80773 888505
62 1825 890330 10% 89033 979363
63 1825 981188 10% 98119 1079306
64 1825 1081131 10% 108113 1189244
65 1825 1191069 10% 119107 1310176