Question 3

Today is 1 January 2016. Sumsang company will start to deposit part of its after-tax profit to launch a new phone project in 3 years' time. The project launch date is 1 January 2019 and the required capital amount is 5 million dollars. Sumsang is planning to make 3 annual deposits into an investment fund. The assumed investment fund return rates of 2016-2018 are shown in table 2 (B6:B8). The first deposit will be made today (1 January 2016) and the last one will be made on 1 January 2018. Sumsang's current before-tax profit is 4 million dollars and it believes that its before-tax profit will increase by 4% every year. The company tax rate is 30%. The deposit amount is x% of Sumsang's after-tax profit.

Table 2: Excel spreadsheet A B C D E Tax rate 30% Profit 4% growth rate p.a. x% 38.30% Sumsang project plan Year Investment Before-tax After-tax Deposit return rates profit profit amount -JO 2016 4.0% $4,000,000 $3,840,000 $1,470,799 2017 4.7% $4,160,000 $3,993,600 $1,529,631 2018 4.3% $4,326,400 $4, 153,344 $1,590,816 2019 Total Accu- $5,000,000 mulated value