Question

In: Finance

Ralph wants to quit his job and move to Hawaii on December 25, 2015. Once there,...

Ralph wants to quit his job and move to Hawaii on December 25, 2015. Once there, he anticipates that he will need to make annual withdrawals of 14500 dollars (starting on December 25, 2016) to supplement his income from working as a cabana boy, and he wants the money to last 10 years (i.e. he'll make 10 withdrawals total). His plan is to make annual deposits, starting on December 25, 2000 and ending on December 25, 2015, into an account paying 9.2 percent effective interest. How large should each deposit be for Ralph to realize his goal?

Solutions

Expert Solution

First, we calculate the present value of the withdrawals as on December 25, 2015.

Present value is calculated using PV function in Excel :

rate = 9.2% (annual interest rate)

nper = 10 (10 annual withdrawals to be made)

pmt = -14500 (annual withdrawal amount. This is entered as a negative number because it is a cash outflow from the account)

PV is calculated to be $92,242.41

This is the amount required to be in the account to fund the withdrawals for 10 years.

Next, we calculate the annual deposit so that the value of account as on December 25, 2015 is $92,242.41.

Annual deposit is calculated using PMT function in Excel :

rate = 9.2%   (annual interest rate)

nper = 16 (16 annual deposits from 2000 to 2015)

pv = 0 (beginning amount in account is zero)

fv =  92242.41 (amount required to be in account at end of 16 years, i.e. on  December 25, 2015)

PMT is calculated to be $2,747.72

The annual deposit is $2,747.72


Related Solutions

In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United Sates (including Arizona), beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Arizona Microbrewery, Inc. (AMI). His family supported his decision and invested in the business along with David. AMI began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro Pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout).   In much of the United States (including Arizona), beer is sold in a “three-tier” system. Under this system, beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United Sates (including Arizona), beer is...
In 2009, David Tucker quit his job at a large beer company to start his own...
In 2009, David Tucker quit his job at a large beer company to start his own brewery, Tempe Microbrewery (TM). His family supported his decision and invested in the business along with David. TM began operations on January 10, 2010 and now produces four labels of specialty beers (Saguaro pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout).   In much of the United Sates (including Arizona), beer is sold in a “three-tier” system. Under this system, beer is manufactured...
please urgent!! Dale quit his $60,000 teaching job at the Wonderful College and started his own...
please urgent!! Dale quit his $60,000 teaching job at the Wonderful College and started his own consulting firm last year. He figured that since he doesn’t have to pay himself a salary and since he could use an office with a market rental value of $6,000 in a building which he owns, he could save a lot of money and have a profitable business. His last year’s revenues & expenses are listed below: a. Calculate Dale’s accounting profit. (4pts) b....
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
A senior executive of a public sector company recently quit his job under the VRS with...
A senior executive of a public sector company recently quit his job under the VRS with a hefty packet of INR 1 Crore. Ms. Dhana-chor Chit Fund Company has offered the following investment scheme for the benefit of such retired people: "Invest a certain sum (in lakhs of rupees) in any month; invest half of that amount in the next month. In the subsequent month, one would get twice the amount invested originally in the first month”. This scheme is...
John was a high school teacher earning $ 80,000 per year. He quit his job to...
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering.In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills.John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account....
John was a high school teacher earning $ 80,000 per year. He quit his job to...
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT