Question

1)Barney Rubble plans to deposit $4,900 per year at the end of every year for the next 11 years.  Given an interest rate of 4% compounded annually, how much will Barney end up with in his account?

2)At the end of 2018, MLDR Corporation had a retained earnings balance of $4,178,500.  At the end of 2019, MLDR’s retained earnings balance stood at $4,565,700.  In 2019, MLDR paid dividends of $760,000.  Calculate the company’s net income for 2019.

Answer 1

1).

Given that the deposit will be $4900 at the end of every year for next 11 years. This is an example of annuity. We need to find the future value of annuity to know the final value of the deposits. The formula to be used is (P*((1+r)^n)-1)/r, where P is deposit amount, r is the interest rate and n is number of periods.

On substituting, we get (4900*((1+4%)^11)-1)/4%

= (4900*((1.04)^11)-1)/0.04

= (4900*(1.539-1))/0.04

=2643.32/0.04

= 66083.12

So, Barney will end up with $66083.12 in his account

2).

Retained earnings in current period can be calculated using the formula:

Retained earnings in current Period= Retained earnings in previous Period+ Current Net Income- Dividends paid in current Period

On substituting the given data, we get,

4565700= 4178500+ Net Income- 760000

So, Net Income= 4565700-4178500+760000= 1147200

So, Company's Net Income for 2019 is $1147200