IE 201 Project Personal Financial Planning Spring 2019 A Wha

Ie201projectpersonalfinancialplanningspring2019a Whatyouneedto

This project is designed to help you plan for your financial future by creating and analyzing cash flow scenarios over a three-year period starting from the first month after graduation. You are required to develop two scenarios incorporating realistic income and expense data, and perform financial calculations including Present Worth (PW), Annual Worth (AW), and Rate of Return (ROR). Additionally, you will determine the necessary initial savings to prevent negative cash flow, and identify a target savings goal for the three-year period. The project involves detailed financial modeling, with careful consideration of inflation, tax deductions, and interest rates.

Specifically, you will work with two scenarios:

Scenario 1: Post-graduation full-time employment with an annual salary of $54,000 (net of taxes), increasing by 3% annually.

Scenario 2: Post-graduation employment starting with a part-time job earning $15,000 annually, followed by securing a full-time position earning $54,000 annually with a 3% annual increase in the second year.

Using provided Excel tools, you will estimate all relevant income and expense categories, adjusting for at least 2% annual inflation. You will then perform a series of financial calculations — computing the Present Worth and Annual Worth of each cash flow at interest rates of 1%, 2%, 3%, 4%, and 5%. Also, you will calculate the Rate of Return assuming a reinvestment rate of 6%, and determine the initial savings needed at graduation to ensure positive cash flow over the three-year period. Finally, you will select a target savings goal for the three years (more than $5,000), and, considering borrowing at a 4% rate for negative flows, identify which low-priority expenses can be reduced or eliminated to meet this savings target.

All inputs must be realistic; if preferred, you may use hypothetical data approximating a typical recent engineering graduate's financial situation. Complete all calculations clearly, providing detailed explanations in a Word document. Submit both your Excel file (detailing your scenario data and calculations) and your Word file (explaining your methodology and findings).

Paper For Above instruction

The proposed financial planning project offers an immersive experience into practical personal finance management tailored for recent graduates. It emphasizes understanding cash flow dynamics, the impact of inflation, and the significance of strategic savings and investments over a three-year horizon. This comprehensive analysis not only develops technical skills in financial calculations but also fosters critical thinking about decision-making in personal finance.

Initially, students must develop two distinct income scenarios reflecting realistic post-graduation employment circumstances. Scenario 1 represents a stable full-time job providing a fixed annual income that increases modestly, mirroring typical salary growth. Scenario 2 blends part-time and full-time work, presenting a more variable income landscape. For both, students identify all relevant expenses, ensuring they include basic living costs such as housing, food, medical expenses, transportation, and miscellaneous costs—all adjusted for at least 2% inflation annually—to simulate real-world price increases.

The core financial analysis involves calculating the Present Worth (PW) and Annual Worth (AW) of the cash flows at varying discount rates (1% to 5%). This allows for understanding the value of the cash flow streams under different interest scenarios. The calculation of the Rate of Return (ROR) with a 6% reinvestment rate further evaluates the profitability of the cash flows, enabling students to judge the efficiency of their financial plans.

Determining the initial savings required at graduation to maintain a non-negative cash flow trajectory is crucial. This requires analyzing the cumulative cash flows and identifying a minimum starting capital that prevents depletion over three years. Students then select a savings goal exceeding $5,000, considering adjustments to expenses or borrowing strategies. Specifically, they analyze cost reduction opportunities, especially among low-priority expenses, to meet this savings target while maintaining a feasible lifestyle.

This project emphasizes analytical rigor, attention to realistic financial data, and strategic planning. It underscores the importance of proactive financial management, enabling students to develop personalized strategies for asset accumulation and debt mitigation in their early careers. Through comprehensive calculations and scenario analysis, students gain valuable insights into managing personal finances amid variable income streams, inflation, and economic uncertainties.

References

  • Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  • Fabozzi, F. J., & Markowitz, H. M. (2011). The Theory and Practice of Investment Management. Wiley.
  • Mishkin, F. S., & Eakins, S. G. (2018). Financial Markets and Institutions (9th ed.). Pearson.
  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.
  • Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (16th ed.). Cengage Learning.
  • Investopedia. (2023). Discounted Cash Flow (DCF). https://www.investopedia.com/terms/d/dcf.asp
  • Federal Reserve Bank. (2023). Economic Data and Trends. https://fred.stlouisfed.org/
  • U.S. Bureau of Labor Statistics. (2023). Consumer Price Index. https://www.bls.gov/cpi/
  • Cheng, D. (2017). Personal finance for college students. Journal of Financial Planning, 30(4), 45-54.
  • Shapiro, A. C. (2013). Multinational Financial Management. Wiley.

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