1.) A client is 20 years from retirement and desires to invest today for a $35,000 retirement annuity beginning one year following his retirement and continuing for 15 years in his retirement. The client requires an average 8 percent return over the entire term. What lump sum does the client need to invest today? What annuity amount?

2.) Find the marginal weighted average cost of capital given the following information:

(a) The firm has an outstanding zero-coupon bond issue with a remaining maturity of 10 years and a current price of $395.29 (in cents, not 32nds).

(b) The firm has an outstanding preferred stock issue, $100 par with a 10 percent dividend selling for $97.50. Flotation costs on a new issue are 8% of the price.

(c) The firm's outstanding common stock is selling for $28.75. The last five dividends paid were:

YR 1 $1.60
YR 2 $1.75
YR 3 $1.82
YR 4 $1.90
YR 5 $2.00

The growth of dividends over the last five years is expected to continue. Flotation costs on a new issue of common stock is 10 percent.

(d) The firm's combined state and federal income tax rate is 40 percent.

(e) The firm's target capital structure is 35 percent debt, 15 percent preferred stock, and 50 percent common equity. Common equity is from a new issue.