Paul Adams owns a health club in downtown Los Angeles. He charges his customers
ID: 2613744 • Letter: P
Question
Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $490 and has an existing customer base of 580. Paul plans to raise the annual fee by 8 percent every year and expects the club membership to grow at a constant rate of 5 percent for the next five years. The overall expenses of running the health club are $123,000 a year and are expected to grow at the inflation rate of 4 percent annually. After five years, Paul plans to buy a luxury boat for $490,000, 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 10 percent on his savings. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)
How much will Paul have in his savings on the day he starts his world tour assuming he has already paid for his boat?
How much will Paul have in his savings on the day he starts his world tour assuming he has already paid for his boat?
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?
How much will Paul have in his savings on the day he starts his world tour assuming he has already paid for his boat?
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=Explanation / Answer
Annual Annual Annual Year Revenue Expenses Income 1 284200.00 123000.00 161200.00 2 298410.00 127920.00 170490.00 3 313330.50 133036.80 180293.70 4 328997.03 138358.27 190638.75 5 345446.88 143892.60 201554.27 Total 1570384.40 666207.67 904176.73 Account Value at Retirement = $904,176.73 Annual withdrawl = 904,176.73 x (0.10(1+0.10)^25)/(1.10^25-1) =904,176.73 x 0.110168 =$99,611.41 Annual Withdrawl = $99,611.41