CHAPTER $4$ ANNUITY

Case in Point Summary Exercise

MAYO CLINIC

www$.$mayoclinic.com

$1889$: Founded in Rochester, MN

$1987$: Expanded to Jacksonville, FL

$2016$: Over $50,000$ employees

$2018$: More than a million patients

The Mayo Clinic is the largest integrated, not$-$for$-$profit medical group practice in the world. With main facilities in Minnesota, Arizona, and Florida, it is ranked among the best hospitals in the world. Its mission is focused on people:

To inspire hope and contribute to health and well$-$being by providing the best care to every patient through integrated clinical practice, education and research.

After getting his two$-$year degree in radiation therapy and working for three years at a small hospital, Darnell Johnson went to work for the Mayo Clinic at a salary of $$63,500.$ The clinic puts $6\%$ of his salary into his retirement plan and also allows Darnell to contribute up to an additional $5\%$ of his salary.

Johnson decides to put $5\%$ of his salary into his retirement plan in addition to the amount put into the plan by his employer. Find the total annual contribution into the retirement plan.

Johnson decides to invest his retirement funds in a mutual fund with global stocks that he hopes will yield $8\%$ per year. Find the future value in his account after $12$ years.

Assume the Mayo Clinic has exactly $55,000$ employees and that the average salary per person including physicians is $$87,300$ per year, which includes the cost of health insurance paid by the employer. Estimate the annual payroll.

Use the annual payroll to estimate the annual contribution the Mayo Clinic must make into $($a$)$ FICA $($Social Security$)$ and Medicare $(7\mathrm{.}65\%$ of all wages$)$ and $($b$)$ the retirement plans of all employees.

$($a$)$

$($b$)$

$1$

$2.$

$3.$

$($b$)$

$($a$)$

$($b$)$

$6.$ The Mayo Clinic saved the life of a wealthy entrepreneur who had cancer. He decided to donate $$400,000$ per year for the next $5$ years to the hospital. Find the present value of this gift, assuming $6\%$ per year.

$7.$ Managers have decided to build a new building in $7$ years and will need $$47,400,000.$ The chief financial officer $($CFO$)$ decides to fund this cost by making contributions into a sinking fund at the end of each $6-$month period. Find the payment needed every $6$ months if funds earn $5\%$ per year.

$6.$

$7.$