Matt and Debra Baxter live in an upscale neighborhood in Orem, Utah. Matt is a partner...

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Matt and Debra Baxter live in an upscale neighborhood in Orem,Utah. Matt is a partner in the family owned business. Debra stayshome with their child, Brady, who is age 5.
After visiting with their financial planner, the couple becameconcerned that they were spending too much and not putting enoughfunds aside for Brady’s future educational needs. Matt earns$85,000 per year, but with the rising costs of education, they areconcerned.
Matt is an alumni of Duke University, a prestigious school withtuition and book expenses of approximately $18,000 per year. Debragraduated from Utah Valley University. The expense for tuition andbooks there is estimated at about $8,000 per year. When Brady turns18, the couple wishes to send him to one of these two exceptionaluniversities. They have a slight preference for Utah ValleyUniversity. The problem, however, is that with the rate at whichtuition is increasing the Baxter’s are not sure they can saveenough money and they have decided they do not want to borrow topay for Brady’s education. Assume the tuition at both universitieswill increase at an annual rate of 5% from now until Brady startscollege.
Living expenses are currently estimated to be $9,000 per year atboth schools. This expense is expected to increase at only 3% peryear. Further, assume that Baxter’s can deposit their money into agrowth oriented mutual fund which has historically earned 12% perannum.
The couple wishes to save by having a pre-determined amountautomatically withdrawn from their bank account at the end of eachmonth. They plan to contribute from now until Brady starts college.When Brady starts college, at the beginning of his freshman year,they will stop making contributions. They want to have enough intheir account when Brady starts college so the principle andinterest will cover all four years of his college expenses. Theywill make annual withdrawals from the account to cover both tuitionand living expenses for Brady at the beginning of his freshman,sophomore, junior, and senior years. When the withdrawal for thesenior year is made the account balance will be zero.
Complete a thorough analysis and write a professional letter tothe Baxter’s (who don’t understand finance) explaining the analysisyou performed, why you performed it, and the results andconclusions. In the letter and attached schedules provideinformation that answers the following questions.
-When Brady is 18, what will be the tuition expense, livingexpense, and total expense for each of the four years that Bradywill attend college? Provide the information for eachUniversity.
-What amount will be needed in the account when Brady starts hisfreshman year if he attends Duke? What amount if he attendsUVU?--
-How much money will Matt and Debra have to deposit at the endof each month to allow Brady to attend Duke? How much money willhave to be deposited per month to allow Brady to attend Utah ValleyUniversity? Assume that Matt and Debra stop making deposits whenBrady starts college.
-The Baxter’s are concerned that given the current marketperformance the mutual fund will only earn 9% per year. Redo theanalysis assuming they can earn only 9% per year on theirinvestments. How much will be needed in the account when Bradystarts college and how much will have to be deposited per month forBrady to have sufficient funds to attend each school?
Please show excel workthrough!

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4.2 Ratings (647 Votes)

1 DukeUniversityThe tuition expenses of brady in freshman yearcurrent tuitionexpenses1inflation rateage at the freshman yearcurrentage 18000100518518000105133394168The tuition fees for the brady in sophomore year Tuitionexpenses in freshman year10533941681053563877The tuition expenses for the brady in junior yeartuitionexpenses in junior year1053742070The tuition expenses for the brady in senior yeartuitionexpenses in junior year10537420701053929174The total tuition expenses for all four years if he attends dukeuniversity339416835638773742070392917414629290Utah ValleyUniversityThe tutiion fees for the brady in freshman year current tuitionexpenses1inflation rateage at the freshman yearcurrentage80001051851508519The tuition fees for the brady in sophomore year15085191051583945The tuition expenses for the brady in junior yeartuitionexpenses in junior year105158394510516631425The tuition expenses for the brady in senior yeartuitionexpenses in senior year1051663142510517463The total tuition expenses for the brady for fouryears15085191583945166314251746365019 appSince The living expenses are estimated to be equal at bothuniversitiesTherefore the living expenses for the brady in freshmanyearcurrent living expenses1inflation rateage at thefreshman yearcurrent age90001031851321680The living expense for See Answer

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Transcribed Image Text

Matt and Debra Baxter live in an upscale neighborhood in Orem,Utah. Matt is a partner in the family owned business. Debra stayshome with their child, Brady, who is age 5.After visiting with their financial planner, the couple becameconcerned that they were spending too much and not putting enoughfunds aside for Brady’s future educational needs. Matt earns$85,000 per year, but with the rising costs of education, they areconcerned.Matt is an alumni of Duke University, a prestigious school withtuition and book expenses of approximately $18,000 per year. Debragraduated from Utah Valley University. The expense for tuition andbooks there is estimated at about $8,000 per year. When Brady turns18, the couple wishes to send him to one of these two exceptionaluniversities. They have a slight preference for Utah ValleyUniversity. The problem, however, is that with the rate at whichtuition is increasing the Baxter’s are not sure they can saveenough money and they have decided they do not want to borrow topay for Brady’s education. Assume the tuition at both universitieswill increase at an annual rate of 5% from now until Brady startscollege.Living expenses are currently estimated to be $9,000 per year atboth schools. This expense is expected to increase at only 3% peryear. Further, assume that Baxter’s can deposit their money into agrowth oriented mutual fund which has historically earned 12% perannum.The couple wishes to save by having a pre-determined amountautomatically withdrawn from their bank account at the end of eachmonth. They plan to contribute from now until Brady starts college.When Brady starts college, at the beginning of his freshman year,they will stop making contributions. They want to have enough intheir account when Brady starts college so the principle andinterest will cover all four years of his college expenses. Theywill make annual withdrawals from the account to cover both tuitionand living expenses for Brady at the beginning of his freshman,sophomore, junior, and senior years. When the withdrawal for thesenior year is made the account balance will be zero.Complete a thorough analysis and write a professional letter tothe Baxter’s (who don’t understand finance) explaining the analysisyou performed, why you performed it, and the results andconclusions. In the letter and attached schedules provideinformation that answers the following questions.-When Brady is 18, what will be the tuition expense, livingexpense, and total expense for each of the four years that Bradywill attend college? Provide the information for eachUniversity.-What amount will be needed in the account when Brady starts hisfreshman year if he attends Duke? What amount if he attendsUVU?---How much money will Matt and Debra have to deposit at the endof each month to allow Brady to attend Duke? How much money willhave to be deposited per month to allow Brady to attend Utah ValleyUniversity? Assume that Matt and Debra stop making deposits whenBrady starts college.-The Baxter’s are concerned that given the current marketperformance the mutual fund will only earn 9% per year. Redo theanalysis assuming they can earn only 9% per year on theirinvestments. How much will be needed in the account when Bradystarts college and how much will have to be deposited per month forBrady to have sufficient funds to attend each school?Please show excel workthrough!