Question

4. John is 35 years old right now. He needs $550,000 at age of 65 to retire comfortably. If his 401K account can generate an average annual rate of return of 5%, how much money (Payment) he needs to put in right now annually? 5. Philadelphia 76ers will have a "guys night out" campaign. For a set of 4 tickets purchased at $45 per ticket level, fans will receive a free beer and a hotdog. The cost of a beer and a hotdog to the 76ers are $1.5 and $2.1 respectively. Also, the marketing department spent following on local ads for the game including fliers $3,000; newspaper $9,000; radio station $15,000, and TV $55,000. (a). list all the Variable Costs and Fix Costs of the campaign. (b). how many sets of tickets of four have to sell to break even.

Answer 1

(4): Here time period = 65-35 = 30 years. rate = 5% annual and FV = 550,000. Using these parameters we can easily compute the annual amount that will have to be deposited each year. The number can be computed using the “PMT” function.

The syntax will be: PMT (5%, 30, 0, -550000). This will give a value of $8,278.29. If John and his employer are making matching contributions then John’s contributions will halve to 8278.29/2 = $4,139.14

(5): (a): Here variable costs are cost of beer (i.e. $1.5 per set) and cost of hot dog ($2.1 per set).

Fixed costs = all advertisement costs i.e. fliers ($3,000); newspaper ($9,000); radio station ($15,000) and TV ($55,000)

(b): Break even = total fixed costs/(selling price per set – variable cost per set)

= (3000+9000+15000+55000)/(45 – (1.5+2.1))

= 82,000/41.40

= 1,980.68 sets (in case the question assumes that the price of each ticket is $45 and cost of beer and hotdogs is for each ticket then the number of sets = 1980.68/4 = 495.17 sets)