Question
Today is 1 January 2018. Judy is 20 years old today and she is planning to purchase a car priced at $80,000 on 1 July
Today is 1 January 2018. Judy is 20 years old today and she is planning to purchase a car priced at $80,000 on 1 July 2022. Judy believes that, at the time of purchasing the car, she should have savings to cover 40% of the car price (i.e., $32,000) and she can borrow the remaining 60% of the car price (i.e., $48,000) through a 7-year loan.
To save the 40% of the car price (i.e., $32,000), Judy plans to deposit x% of her monthly after-tax salary into a fund at the end of each month from July 2020 to June 2022.
Judy assumes that she can successfully graduate from university and find a job on 1 July 2020. Judy estimates that her initial before-tax salary will be $60,000 p.a. payable monthly. All her salary will be paid at the end of each month. Judy forecasts that her salary will grow at the rate of 2% p.a. The salary adjustment will only be conducted at the beginning of July in each year. For example, it is assumed that her salary is $60,000 p.a. payable monthly from July 2020 to June 2021, and then her salary is $60, 000(1 + 2%) p.a. payable monthly from July 2021 to June 2022.
The deposit fund yield is estimated to be 5.5% p.a. payable monthly (i.e., j12 = 5.5% p.a.) from July 2020 to June 2022.
Assume that all her salary is taxable. Progressive marginal individual income tax rates are as shown in table 1 (A5:C10). Based on the projected income and tax rate from table 1, we can calculate the income tax for a financial year1 . Then we can calculate the tax instalment and after-tax salary for each income salary payment (for simplicity, we assume that there is no Medicare Levy.). For example, if a person's annual income is $50,000. Her annual income tax is $3, 572 + ($50, 000 ? $37, 000) 0.325 = $7, 797. For each income payment, her monthly tax instalment is $7,797/12=$649.75 and after-tax monthly income is $50, 000/12?$649.75 = $3, 516.92.
Judy calculates her future income, income tax and after-tax income from July 2020 to June 2022. She then sets a formula in F8 and uses Goal Seek to find the value of x.
**1Note that a financial year is defined as a period starting on 1 July and ending on the next 30 June in Australia.
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