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1.You are planning to retire in 25 years time. Immediately after your retirement, you wish to go for around the world trip last in gone year.Your monthly expenses for the trip work out to be 9000 and the first withdrawal will be made at the end of the month after your retirement.You also want to provide your self with 35,000 a year for next 15 years on your return from the world trip. How much you should save every month to provide for the above if the effective rate of interest is 14% per annum.

2.Your firmhasaretirementplanthatmatchesallemployeecontributionswithemployercontributions on a two-to-one basis. That is if an employee contributes 1,000 per year, the company will add 2,000 to make the total contribution 3,000. The firm guarantees a fixed 6 percent return on the funds. Alternatively, you can provide for retirement yourself, and you think youcanearn9percentonyourmoney.Thefirstcontributionwillbemadeoneyearfromtoday.Atthattime and every year thereafter, you will put 2,500 into the retirement account, the same amount as you would have contributed to the company pension fund.You plan to retire in 30 years.Are you going to be better off participating in the company scheme or making your own arrangements?Explain the basis of your answer(ignore any tax considerations.

3.The manager responsible for the pension fund of Ruthin plc has to present a report to the Board of Directors on the financial position of the fund.He decides to use the position of the typical employee to illustrate the funds position.There is 30,000 currently held in the fund for each employee.The typical employee has 15 years to go to retirement and the companys actuary has proposed that the company should anticipate having to fund pension payments over a retirement period of 12 years for the average employee.The average pension payment per annum is expected to be12,000 and the rate of return expected on the pension funds investment is expected to be 6 per cent.The manager needs to determine the constant annual sum that the company needs to put into the pension fund for each of the next 15 years to be able to meet the funds obligations.Determine this annual sum.(Assume all payments into the fund and all pension payments are made at the end of each year.)

4. Rights issuesLong term Financing

Santa PLC is an all equity financed company with 100 million shares outstanding trading at 2 per share. Its management has decided to invest in a major new development that will cost 40 million,and is now considering ways to finance the investment.Various alternatives have been considered but the choice has been narrowed down to a rights issue or the issue of debentures(a kind of bond). the rights issue would be made at a discount of 20% and be underwritten at a cost of 2% of the proceeds. The companys chairman has discussed the proposed investment and its prospects as well as the financing possibilities,quiteopenlywithvariousinstitutionsandthefinancialpress.Asaresultitislikelythatthe share price already reflects the implications of the companys proposed investment. Required:

a) Determine the terms of the right issue,the ex-rights price and the theoretical value of the right.

b) Demonstrate that in principle the shareholders will be equally well off by subscribing to the issue or by selling their rights. Assume the shareholder has 100 shares.

c) Explain the impact on the value of the right if the issue is undertaken on the specified terms and the share (cum-rights) price falls to 1.8 shortly after the shareholders are invited to subscribe to the new issue.

d) Would a deep discount without underwriting be preferable to save the expense of the under writing fees ? Management considered the possibility but decided against it as it would have resulted in the dilution of EPS. Comment on the view taken by the management.

e) Evaluate the contention that the shareholders can expect an earnings yield of 30% on shares bought given a rights issue at a discount of 20%, and that this suggests a relatively high cost of capital.

f) The cost of underwriting is sometimes assessed in terms of the costs of an equivalent PUT option. Explain and discuss this approach.

g) Explain and assess the view that rights issues are designed to protect the interests of shareholders.