Question

Paul adams owns a health club in downtown los angeles. He charges his customers an annual fee of $840 and has an existing customer base of 510. Paul plans to raise the annual fee by 5 percent every year and expects the club membership to grow at a constant rate of 4 percent for the next five years. the overall expenses of running the health club are $116,000 a year and are expected to grow at the inflation rate of 2 percent annually. After 5 years, paul plans to buy a luxury boat at $420,000, close the health club, and travel the world in his boat for the rest of his life. Assume paul has a remaining life of 25 years and earns 9 percent of his savings.

How much will paul have in his savings on the day he starts his world tour assuming he has already paid for his boat?

Account value at retirement:

What is the annual amount that paul can spend while on his world tour if he will have no money left in the bank when he dies?

Annual withdrawal:

Answer 1

E F A B C D 1 Growth rate 9.20% =(1+5%)*(1+4%)-1 2 Current value $ 428,400 =840*510 4 Year Revenue Costs Savings 1 $ 467,813 $ 118,320 $ 349,493 21 $ 510,852 $ 120,686 $390,165 3 $ 557,850 $ 123,100 $434,750 4 $ 609,172 $ 125,562 $483,610 5 $ 665,216 $ 128,073 $537,143 FVIF @ 9% Future value 1.412 $493,337.61 1.295 $ 505.275.22 | 1.188 $ 516,526.23 1.090 $ 527,134.88 1.000 $ 537,142.58 Total future value $ 2,579,416.52 $ 2,159,416.52 -2579416.52-420000 13 Account value at retirement 14 15 Annual withdrawal | $ 219,842.10 -PMT(9%,25,-2159416.52,0,0) |

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