QUANTITATIVE METHODS WITH ECONOMICS ASSIGNMENT

Question 1 - Calculation of Superannuation

Superannuation is a way to save for your retirement. The money comes from contributions made into your superannuation fund by your employer and ideally, added to with your own money. Sometimes the government will add to it through co-contributions and a low income contribution.

Your employer must pay 9.5% of your salary into a superannuation fund. In Australia this is the law. (https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works)

An Australian worker aged 35 and currently earning $65,000 per annum, has an established superannuation account, into which her employer pays 9.5% of her salary each year but she does not contribute any extra money to the fund (a co-contribution). She has calculated that she needs her superannuation fund to earn $35,000 per annum on retirement and she expects to live for another 20 years after retirement. Assume:

1. She will retire at 65 and can access her superannuation immediately.

2. Her Superannuation fund will generate 5% return (compounded annually), over the long term.

3. Her income remains $65,000 per annum.

Steps to complete to undertake the investigation

Calculate:

a. How much money will be in the Superannuation account by the time she retires at 65?

b. What will her income be if the account generates 5% return?

c. How much money should be in the superannuation account if she wants to earn $35,000 per year from the account after her retirement?

d. What age would she have to work till in order to generate $35,000 p.a as a pension after her retirement?

e. Using excel or similar, graph the Total amount (V) against time in years (n).

In a short statement of no more than 300 words, use your findings to provide advice for young people entering the workforce, concerning the accumulation of superannuation.

• Specifically address the issue of co contribution.
• The limitations evident in your calculations.
• Any assumptions that you have made.

Further information about superannuation is available at the following url:

• https://www.ato.gov.au/Individuals/Super/
• http://www.smh.com.au/money/super-and-funds/budget-2016-super-strategies-for-the-average-aussie-20160504-golvtz.html

Question 2 - Impact of company tax

A small business produces work boots for sale in Australia. They produce 23,500 pairs of boots per year and sell then for $50 a pair. In the 2014-2015 financial year they paid company tax on their earnings at 28.5%. The company's total fixed costs are $125,000 per year and the total variable costs are $14 per pair of boots. The price demand function for q number of boots in thousands, is p = 50 - q (p is the price in dollars).

Company taxes are to be reduced to 25% for the next financial year.

1. What is the amount of tax (in $) paid at:

a. 28.5% (rate in 2014-2015)

b. 25% (rate in 2015-2016)

2. Should the company reduce the price per pair of boots by the amount of reduced tax paid or retain the extra profit? Justify your answer by showing all working.