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ACC Problem - Sierra Zackman and Landon Carter




Question;Problem # 1Sierra Zackman and Landon Carter are co-owners of the corporation Antietam Specialty FoodsInc. The business started with $ 250,000 in cash sourced from family members. The business hasreached the point where enough monthly cash flow is being generated to pay a reasonable salaryto each owner and to reasonably expect that the business should continue to grow in revenues,profits, and cash flow. Prepare the followings and a three page commentary:1. Amount that must be saved annually to reach desired cash safety net balance within threeyears (use the 7% earnings rate). (Three years for each)2. Amount that must be saved annually to reach the forecasted cash needed to purchase thenew home (use the 7% earnings rate). (Six years for Sierra and seven years for Landon))3. Amount that will be available to meet college cost needs. Any deficit is funded by usingproceeds from the sale of the business which reduces the availability of funds to meetretirement needs. Any shortage will be borrowed and repaid when the business is sold.4. Amount that is desired/needed at the beginning of retirement to meet the forecasted cashneeds during retirement years ($80,000 and $85,000 annually). The 2% rate applies here.5. Amount that the proceeds from the sale of the business will provide towards the amountcalculated in (4) above. Remember to pay any college cost debt. The 7% growth rateapplies.6. Amount that needs to be invested annually over 20 years preceding retirement so that theamount calculated in (4) is achieved after taking into consideration the amount providedby the proceeds from the sale of the business. The 7% rate applies.7. Conclude with a schedule that shows, by year, the amounts needed to be invested to reachthe multiple goals presented in the case.The following forecasts were made by each owner (key assumptions) related to his/hersignificant events in their financial futures:Need to create a$40,000 cashbalance safety netSell current homeand move to a largerhomeCash needs for newhome at move timeCash from sales ofcurrent home (applyto cash needsYears until collegecosts beginExpected cashneeded for collegeby yearsSierra3 yearsLandon3 years6 years7 years$100,000$120,000$60,000$70,00015181550,00001652,00001718192021222354,000112,00059,00061,00064,00000During each of the 10 years prior to the first payment needed forcollege the amount cash that is forecasted to be invested into acollege saving plan (annually)Expected sale of the business (years from now)Expected after tax cash flow at time of saleExpected number of years until retirementAnnual applicable earnings rate of money pre-retirementLife expectancy (years) after retirementAnnual cash needs (from this account) during retirement yearsAnnual applicable earnings rate of money during retirementNumber of years prior to retirement that cash flow will besufficient to set aside dollars for retirement056,00059,000122,000128,00068,00071,00012,00012,00025750,000307%3080,0002 25750,000357%85,0002 NB: The dollars amount should be rounded e.g. $ 100. Format all dollar amount cellscomma with no decimal places.*A three page report that is developed will be presented to each of the individualsidentified above. The report is not simply a series of calculations. The individual expectthat you will identify key assumptions that were made and provide commentary related tothe severity of the impact if particular key assumptions fail to be met.*The individuals have forecasted a 7% earnings (growth) rate on all monies investedduring the pre-retirement years. Whether the individual is saving for the cash balancesafety net, purchase of the new home, college, or retirement use the 7% annual growthrate. Apply this rate to all monies held as an investment up until the retirement yearsbegin.*If the amount saved in the college fund is sufficient to pay the cost of college when thetime arrives, all needs will be borrowed and repaid out of the proceeds when the businessis sold. No need to impute interest on the borrowed college costs (if any). Use theprincipal borrowed as the payoff amount needed.ACC Problem - Sierra Zackman and Landon Carter


Paper#38852 | Written in 18-Jul-2015

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