Dino Corporation offers consultancy services to small businesses and individuals seeking

assistance in investment valuations and legal claims. Recently, the company has received a

few interesting cases involving credit extension, retirement plans and lawsuits. As a

consultancy intern, the company has given you the opportunity to learn by working on the

practical cases. In return, you are required to prepare assessment report on the following

scenarios:

a) Your client, the A.K. Merchandize, would like to offer credit, with quarterly interest on

the outstanding balances. If the client extends credit then it must approach a local bank

for borrowing at 5% quarterly compounding in order to carry receivables. The client

wishes to balance the overheads by charging its customers 2.5% more than its cost of

money. Given this credit condition, what annual percentage rate should A.K.

Merchandize charge its customers?

b) Today, Ashar is 40years old and will retire in 15years; he expects to live further 20years

after his retirement. In the post-retirement life, he wishes to receive fixed income

offering the same purchasing power as he has today i.e. PKR 55,000. At present, he

has PKR 80,000 in his savings box and he expects to earn 6% p.a. on his savings. If

inflation is expected to be 2.5% annually, then how much must he save during each of

the next 15years to fulfill his retirement plan?

c) On 31st December 2018, a local court closed a case in favor of a 64years woman who

sued the city for injuries sustained in a January 2017 accident. She requested recovery

of lost wages along with PKR100,000 for her lawyer's fees and advisory expenses and

PKR500,000 for medical expenses. Her doctor testified that she has been unable to

work since the accident and that she will not be able to work in the future [Assume the

retirement age in the country is 65years]. In the year 2017, she was scheduled to earn

PKR 50,000 and her employer testified that she would have earned a 5% raise per

year. The actual payment for the jury award is scheduled to be disbursed on December

31, 2019. The local court judge stipulated that all rupees amounts are to be adjusted

to a present value basis on December 31, 2019, using a 5% annual interest rate and

using compound interest. Furthermore, the judge stipulated that the medical and legal

expenses should be based on a December 31, 2018, date. How large a check must

the city write on December 31, 2019?