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What is Lifetime Cost?

Lifetime cost is the total amount of money that a good will cost a consumer over the entire course of ownership. This included related, add-on costs such as maintenance, fuel, insurance and so on. These costs can dwarf the actual purchase price of the item. Lifetime cost is also known as total cost of ownership (TCO), and it is a budgetary way to look at the expenses that go along with the purchase of an item. Continue reading...

What Should I Do With a Lump-Sum Distribution From My Cash-Balance Plan?

Lump Sum distributions can allow you to invest according to your preferences, but could also be used frivolously and spent down in a short time. The first thing to keep in mind is that it’s very easy to spend a lump sum right away without thinking about the consequences. While the monthly payment option protects your money from overspending, many people feel that they would derive a greater value from having access to more of their money. Continue reading...

What is the “Joint and Survivor” Option?

The “Joint and Survivor” option on annuities generally provides an income guarantee for the owner and his/her spouse. This option can be applied to an IRA or qualified plan, even though that can only have one owner. Payments from an annuity, even if it is part of a qualified plan or IRA which can only technically have one owner, can be based on two annuitants. This will usually be a married couple, and it ensures that either spouse will receive payments from the annuity, even if one pre-deceases the other. Sometimes the survivorship payout is only a percentage of the original payout, such as 50% or 70%, but this is agreed upon by the annuitants at the time of application, and cannot be changed arbitrarily by the company or the annuitants. Continue reading...

What is an Annuity?

Annuities are financial products developed and sold generally by insurance companies, and they are designed to protect an investor’s principle against the risks of market fluctuations and longevity (life expectancy). Annuities get their names from a series of payments which are based on an annualized payout rate. Annuities formerly just offered fixed payments for life, like a pension, and they were developed by life insurance companies who would use their mortality tables to determine the payout rates. Continue reading...

What are the Different Types of Annuities?

There are fixed annuities, fixed/indexed annuities, variable annuities, hybrid annuities, income annuities, period income annuities, and possibly more. Insurance companies, and the insurance subsidiary wings of investment companies, have had many years to develop strategies and marketing ploys that help clients accumulate, protect, and distribute assets within various kinds of annuities. Variable annuities allow the annuitant to participate in the market through mutual funds — or, more accurately, “separate accounts” that mimic mutual funds. Continue reading...

What is a Life Income Fund?

Life Income Funds (LIFs) are available to Canadians who have left a job before retirement and who are entitled to a sum of money in their pension plan. LIFs offer some flexibility, more than some other alternatives, but the amount that can be withdrawn at a time is limited to a minimum and maximum. The former employee could choose to leave the funds in the pension plan, or to use one of the alternatives to LIFs, which include a Locked-In Retirement Account (LIRA), which is provincially-regulated, or a Locked-In Retirement Savings Plan (LRSP), which is federally regulated. LIRAs and LRSPs do not permit regular withdrawals, and are seen as savings vehicles rather than income vehicles. Continue reading...

Who is an Account Manager?

Account managers are the point of contact and liaison between a business and its clients. An account manager is assigned to specific accounts to maintain the customer relationship, provide service, and to ensure that the customer remains client. It is easier and more cost-effective to preserve a long-term relationship with a client and to get their repeat business than to find new clients. This is especially true when the client is a business entity and their business constitutes a significant portion of overall Revenue. Continue reading...

What is a Life Annuity?

Annuities are primarily designed to pay a substantially similar sum at regular intervals until the annuitant dies. Life insurance companies write these contracts since they are designed as a kind of longevity insurance. A lifetime income annuity, sometimes called a life annuity, is a stream of guaranteed payments for the duration of the annuitant’s life, based on the sum used to purchase the lifetime income and the age of the annuitant at the time of purchase. Life annuities can also be joint-life, meaning the contract will pay an amount to either of two people as long as one is alive. Continue reading...

What is Terminal Value?

The "end" value at a specified date in the future of an investment or cash flow. Terminal value is a term used in value calculations looking forward toward the future value of an asset or cash flow, and also in calculations which start with the Terminal Value and depreciate the asset over the intervening years until one arrives at the Present Value. Can be used in calculations regarding a business, an index, a cash flow, or an asset. Horizon Value is a synonym, and is perhaps better suited to describe the way the calculation chooses a time horizon of a specific number of years, but otherwise uses the same numbers in an equation that will estimate the value if the business or index went on growing at the same rate into perpetuity. Continue reading...

What is Face Value?

Face Value is the nominal value of a security or currency as written/stated by the issuer. It may vary from market price, since for securities like stocks the price is heavily influenced by supply and demand. In the case of bonds, interest is usually calculated as a percentage of face value. Also for bonds, the face value is generally equal to the par value (principal), usually the $1,000 paid to the holder at maturity. Continue reading...

What is Enterprise Value?

Enterprise Value is the total cost to acquire a company. The Enterprise Value of a company is the amount that would have to be paid for full ownership of it, which would include market capitalization (price per share x shares outstanding) + net debt (all liabilities - cash and equivalents). Market cap alone is technically just shareholders equity, and not capital from debt, so Enterprise Value adds that in for consideration. Enterprise value is the numerator in EV/E (Enterprise Value over EBITDA), a very common valuation ratio. Continue reading...

What is Par Value?

Par value is the nominal value of a security (such as a stock or a bond) that is typically indicated on the certificate of ownership. Par value is most often associated with bonds, and refers to the amount that will be returned to the investor at the bond’s maturity. Par value of bonds is generally $100 or $1,000. Bonds traded on the open market are not generally bought and sold at par value, as they typically trade at a premium or a discount to par. Bond prices are influenced by interest rates, and have an inverse relationship with them. Continue reading...

What is a Value Stock?

Value Stock is a stock whose price has been deemed a value buy because of underlying fundamentals, book value, and projected earnings. Prices for stocks can temporarily be pushed around by sentiment, index tracking fund purchases, news and political effects, et cetera, and often the prices on very good and well positioned companies become undervalued as part of larger movements that overlook their inherent value. Continue reading...

What is Intrinsic Value?

Intrinsic Value is the value of a security which is “built into it.” Both options and stocks have it, but it is different for each. Options and stocks have intrinsic value. For options, the intrinsic value is easy to compute, if the option is in-the-money. It is the difference between the strike price of the option and the market price of the underlying security. If an option is out-of-the-money it has no intrinsic value. Continue reading...

What is Abandonment Value?

The Abandonment Value is the salvage value left if a capital project is stopped short at an unknown time. Authors Robichek and Van Horne (1967) offered a very concise argument for the importance of including an Abandonment Value in the calculations leading to a company decision to undertake a long-term capital project. The calculation is useful for risk assessment, and tries to find the value at which project assets could be liquidated if the project could not be continued for some reason. Continue reading...

What is Form 706: Estate Tax and Generation-Skipping Transfer Tax?

IRS Link to Form — Found Here The Form 706 is required not only if there is a tax implication for an estate, but also to claim exclusions. Each person has an exclusion of 5.49 Million as of 2017. For married couples, that goes double, such that heirs to an estate under $11 million probably will not owe any estate taxes. A surviving spouse should still report the inherited portion of the deceased spouse’s estate up to the exclusion amount, otherwise the exclusion will be lost. There are also lines for the lifetime gift exclusion amount and the generation skipping transfer tax. Continue reading...

What is the Difference Between a Growth and Value Stock?

Growth stocks tend to be younger companies focused on using capital to fuel more growth, whereas Value stocks have perceived safety through consistent earnings, cash on balance sheets, and dividends. Neither growth nor value stocks are the best performers for all time, and the reality is that over long stretches of time, performance tends to revert to the mean. Categorically, growth stocks tend to be younger companies that focus capital on investing in expanding operations - hiring new personnel, hiring more employees, entering new markets. Continue reading...

What is present value?

The price in today's dollars for an asset which will appreciate or depreciate to an amount which may be known at a specific date in the future. One simple example of Present Value is the amount that needs to be invested in order to grow to a specific amount later, if the rate of return and length of time are known. So if someone wanted to have $50,000 to buy a boat in 5 years, and they could get 5% on a guaranteed investment, they would need a lump sum investment of about $39,000 to get them there. Continue reading...

What is Future Value?

Future Value is the hypothetical value of an investment at a specific date in the future. The future value (FV) of an investment or business is a calculation used in several types of planning and accounting. In a Time Value of Money (TVM) calculation, the Future Value is often the starting point, and the interest rate that will be earned in the meantime is called Discount Rate, and is discounted by the number of years of periods back to the present time. This allows investors to see the Present Value (PV), which is a lesser, discounted amount from the future value, and gives us the premise for the Time Value of Money, which is that “a dollar today is worth more than a dollar tomorrow.” Continue reading...

What is Time Value of Money?

The Time Value of Money is a theme for discourse and calculations related to the effect of interest on money over time, and the interrelation between Present Value and Future Value. The Time in the equation of Rate of Return x Time x Present Value = Future Value has a value and an effect on the Future Value (or the Present Value depending on what you're solving for). The Time Value of Money is, at it's simplest, something which nearly everyone has seen but hasn't heard called by that name: turn this amount of money into that amount of money by letting it grow in the market for a length of time. Continue reading...