Paul Adams owns a health club in downtown Los Angeles. He charges his customers
ID: 2775237 • Letter: P
Question
Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $500 and has an existing customer base of 600. Paul plans to raise the annual fee by 6 percent every year and expects the club membership to grow at a constant rate of 3 percent for the next five years. The overall expenses of running the health club are $125,000 a year and are expected to grow at the inflation rate of 2 percent annually. After five years, Paul plans to buy a luxury boat for $500,000, 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 on his savings. (Do not round intermediate calculations and round your final answer 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?
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?
Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $500 and has an existing customer base of 600. Paul plans to raise the annual fee by 6 percent every year and expects the club membership to grow at a constant rate of 3 percent for the next five years. The overall expenses of running the health club are $125,000 a year and are expected to grow at the inflation rate of 2 percent annually. After five years, Paul plans to buy a luxury boat for $500,000, 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 on his savings. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Answer: The Paul will have in his savings on the day he starts his world tour assuming he has already paid for his boat:
Revenue=500*600=300000
in year1=(300000*1.06)+318000*(1.03)=327540 and so on
Savings after boat =(1527905.702-500000)=$1027905.702
Withdrawal $104647.23 while on boat to have $0 when dead. (I'm sure his family will appreciate that!)
Year Revenue Cost Saving 1 327540 127500 200040 2 357608.172 130050 227558.2 3 390436.602 132651 257785.6 4 426278.68 135304 290974.7 5 465411.065 138010.1 327401