Question

In: Accounting

Sam has just celebrated her 25th birthday. On her way home from the Easter Holiday celebrations...

Sam has just celebrated her 25th birthday. On her way home from the Easter Holiday celebrations in Portugal, she was nearly involved in an accident. It was at this point that she realised that she needs to save up for her retirement at the age of 55. She currently has no savings available. When Sam retires, she wants to buy a cattle farm in Portugal that will be valued at R3 500 000 in 30 years. She also wants to receive R42 000 per month for the rest of her life. She wants to make monthly payments (starting a month after her birthday) for the next 30 years into an investment account that earns 14,15% p.a., compounded annually.

REQUIRED:

Calculate the monthly payments that Sam must invest for the next 30 years by completing the tables below. Assume the interest rate is the same for both retirement goals.

Solutions

Expert Solution

PV of annuity of $42,000 p.m required from retirement till perpetuity= Cash outflow/ (rate of return- growth rate) = 42,000/ (14.14/12)= $ 3,559,322.

To support her monthly requirement, SAM needs $ 3,559,322 at age of retirement for supporting her monthly needs and $3,500,000 for cattle farm purchase. Total money needed by SAM is 3,559,322+3,500,000= 7,059,322

Below is complete table for cash flow of monthly investment using goal seek-

Month   Opening     Investment      Interest      Closing
1                            -                1,241.57                    1,241.57
2               1,241.57              1,241.57               14.64               2,497.79
3               2,497.79              1,241.57               29.45               3,768.82
4               3,768.82              1,241.57               44.44               5,054.83
5               5,054.83              1,241.57               59.60               6,356.01
6               6,356.01              1,241.57               74.95               7,672.53
7               7,672.53              1,241.57               90.47               9,004.58
8               9,004.58              1,241.57             106.18             10,352.33
9             10,352.33              1,241.57             122.07             11,715.97
10             11,715.97              1,241.57             138.15             13,095.70
11             13,095.70              1,241.57             154.42             14,491.69
12             14,491.69              1,241.57             170.88             15,904.15
13             15,904.15              1,241.57             187.54             17,333.26
14             17,333.26              1,241.57             204.39             18,779.22
15             18,779.22              1,241.57             221.44             20,242.23
16             20,242.23              1,241.57             238.69             21,722.50
17             21,722.50              1,241.57             256.14             23,220.22
18             23,220.22              1,241.57             273.81             24,735.59
19             24,735.59              1,241.57             291.67             26,268.84
20             26,268.84              1,241.57             309.75             27,820.17
21             27,820.17              1,241.57             328.05             29,389.79
22             29,389.79              1,241.57             346.55             30,977.92
23             30,977.92              1,241.57             365.28             32,584.77
24             32,584.77              1,241.57             384.23             34,210.58
25             34,210.58              1,241.57             403.40             35,855.55
26             35,855.55              1,241.57             422.80             37,519.92
27             37,519.92              1,241.57             442.42             39,203.92
28             39,203.92              1,241.57             462.28             40,907.77
29             40,907.77              1,241.57             482.37             42,631.72
30             42,631.72              1,241.57             502.70             44,375.99
31             44,375.99              1,241.57             523.27             46,140.83
32             46,140.83              1,241.57             544.08             47,926.48
33             47,926.48              1,241.57             565.13             49,733.19
34             49,733.19              1,241.57             586.44             51,561.20
35             51,561.20              1,241.57             607.99             53,410.77
36             53,410.77              1,241.57             629.80             55,282.14
37             55,282.14              1,241.57             651.87             57,175.58
38             57,175.58              1,241.57             674.20             59,091.35
39             59,091.35              1,241.57             696.79             61,029.71
40             61,029.71              1,241.57             719.64             62,990.93
41             62,990.93              1,241.57             742.77             64,975.27
42             64,975.27              1,241.57             766.17             66,983.01
43             66,983.01              1,241.57             789.84             69,014.43
44             69,014.43              1,241.57             813.80             71,069.80
45             71,069.80              1,241.57             838.03             73,149.40
46             73,149.40              1,241.57             862.55             75,253.53
47             75,253.53              1,241.57             887.36             77,382.47
48             77,382.47              1,241.57             912.47             79,536.51
49             79,536.51              1,241.57             937.87             81,715.95
50             81,715.95              1,241.57             963.57             83,921.09
51             83,921.09              1,241.57             989.57             86,152.24
52             86,152.24              1,241.57         1,015.88             88,409.69
53             88,409.69              1,241.57         1,042.50             90,693.76
54             90,693.76              1,241.57         1,069.43             93,004.77
55             93,004.77              1,241.57         1,096.68             95,343.02
56             95,343.02              1,241.57         1,124.25             97,708.85
57             97,708.85              1,241.57         1,152.15           100,102.57
58           100,102.57              1,241.57         1,180.38           102,524.52
59           102,524.52              1,241.57         1,208.93           104,975.03
60           104,975.03              1,241.57         1,237.83           107,454.44
61           107,454.44              1,241.57         1,267.07           109,963.08
62           109,963.08              1,241.57         1,296.65           112,501.30
63           112,501.30              1,241.57         1,326.58           115,069.45
64           115,069.45              1,241.57         1,356.86           117,667.89
65           117,667.89              1,241.57         1,387.50           120,296.96
66           120,296.96              1,241.57         1,418.50           122,957.04
67           122,957.04              1,241.57         1,449.87           125,648.48
68           125,648.48              1,241.57         1,481.60           128,371.66
69           128,371.66              1,241.57         1,513.72           131,126.95
70           131,126.95              1,241.57         1,546.21           133,914.73
71           133,914.73              1,241.57         1,579.08           136,735.38
72           136,735.38              1,241.57         1,612.34           139,589.29
73           139,589.29              1,241.57         1,645.99           142,476.85
74           142,476.85              1,241.57         1,680.04           145,398.47
75           145,398.47              1,241.57         1,714.49           148,354.53
76           148,354.53              1,241.57         1,749.35           151,345.45
77           151,345.45              1,241.57         1,784.62           154,371.64
78           154,371.64              1,241.57         1,820.30           157,433.52
79           157,433.52              1,241.57         1,856.40           160,531.49
80           160,531.49              1,241.57         1,892.93           163,666.00
81           163,666.00              1,241.57         1,929.89           166,837.47
82           166,837.47              1,241.57         1,967.29           170,046.34
83           170,046.34              1,241.57         2,005.13           173,293.04
84           173,293.04              1,241.57         2,043.41           176,578.03
85           176,578.03              1,241.57         2,082.15           179,901.75
86           179,901.75              1,241.57         2,121.34           183,264.67
87           183,264.67              1,241.57         2,161.00           186,667.24
88           186,667.24              1,241.57         2,201.12           190,109.93
89           190,109.93              1,241.57         2,241.71           193,593.21
90           193,593.21              1,241.57         2,282.79           197,117.58
91           197,117.58              1,241.57         2,324.34           200,683.49
92           200,683.49              1,241.57         2,366.39           204,291.46
93           204,291.46              1,241.57         2,408.94           207,941.97
94           207,941.97              1,241.57         2,451.98           211,635.53
95           211,635.53              1,241.57         2,495.54           215,372.64
96           215,372.64              1,241.57         2,539.60           219,153.81
97           219,153.81              1,241.57         2,584.19           222,979.58
98           222,979.58              1,241.57         2,629.30           226,850.45
99           226,850.45              1,241.57         2,674.94           230,766.97
100           230,766.97              1,241.57         2,721.13           234,729.67
101           234,729.67              1,241.57         2,767.85           238,739.10
102           238,739.10              1,241.57         2,815.13           242,795.81
103           242,795.81              1,241.57         2,862.97           246,900.35
104           246,900.35              1,241.57         2,911.37           251,053.29
105           251,053.29              1,241.57         2,960.34           255,255.20
106           255,255.20              1,241.57         3,009.88           259,506.66
107           259,506.66              1,241.57         3,060.02           263,808.25
108           263,808.25              1,241.57         3,110.74           268,160.56
109           268,160.56              1,241.57         3,162.06           272,564.19
110           272,564.19              1,241.57         3,213.99           277,019.75
111           277,019.75              1,241.57         3,266.52           281,527.85
112           281,527.85              1,241.57         3,319.68           286,089.11
113           286,089.11              1,241.57         3,373.47           290,704.15
114           290,704.15              1,241.57         3,427.89           295,373.61
115           295,373.61              1,241.57         3,482.95           300,098.13
116           300,098.13              1,241.57         3,538.66           304,878.36
117           304,878.36              1,241.57         3,595.02           309,714.96
118           309,714.96              1,241.57         3,652.06           314,608.59
119           314,608.59              1,241.57         3,709.76           319,559.92
120           319,559.92              1,241.57         3,768.14           324,569.64
121           324,569.64              1,241.57         3,827.22           329,638.43
122           329,638.43              1,241.57         3,886.99           334,766.99
123           334,766.99              1,241.57         3,947.46           339,956.03
124           339,956.03              1,241.57         4,008.65           345,206.25
125           345,206.25              1,241.57         4,070.56           350,518.38
126           350,518.38              1,241.57         4,133.20           355,893.15
127           355,893.15              1,241.57         4,196.57           361,331.30
128           361,331.30              1,241.57         4,260.70           366,833.57
129           366,833.57              1,241.57         4,325.58           372,400.72
130           372,400.72              1,241.57         4,391.23           378,033.52
131           378,033.52              1,241.57         4,457.65           383,732.74
132           383,732.74              1,241.57         4,524.85           389,499.17
133           389,499.17              1,241.57         4,592.84           395,333.58
134           395,333.58              1,241.57         4,661.64           401,236.80
135           401,236.80              1,241.57         4,731.25           407,209.62
136           407,209.62              1,241.57         4,801.68           413,252.88
137           413,252.88              1,241.57         4,872.94           419,367.39
138           419,367.39              1,241.57         4,945.04           425,554.01
139           425,554.01              1,241.57         5,017.99           431,813.57
140           431,813.57              1,241.57         5,091.80           438,146.95
141           438,146.95              1,241.57         5,166.48           444,555.00
142           444,555.00              1,241.57         5,242.04           451,038.62
143           451,038.62              1,241.57         5,318.50           457,598.69
144           457,598.69              1,241.57         5,395.85           464,236.12
145           464,236.12              1,241.57         5,474.12           470,951.81
146           470,951.81              1,241.57         5,553.31           477,746.69
147           477,746.69              1,241.57         5,633.43           484,621.70
148           484,621.70              1,241.57         5,714.50           491,577.77
149           491,577.77              1,241.57         5,796.52           498,615.86
150           498,615.86              1,241.57         5,879.51           505,736.95
151           505,736.95              1,241.57         5,963.48           512,942.00
152           512,942.00              1,241.57         6,048.44           520,232.02
153           520,232.02              1,241.57         6,134.40           527,608.00
154           527,608.00              1,241.57         6,221.38           535,070.95
155           535,070.95              1,241.57         6,309.38           542,621.90
156           542,621.90              1,241.57         6,398.42           550,261.89
157           550,261.89              1,241.57         6,488.50           557,991.97
158           557,991.97              1,241.57         6,579.66           565,813.20
159           565,813.20              1,241.57         6,671.88           573,726.65
160           573,726.65              1,241.57         6,765.19           581,733.42
161           581,733.42              1,241.57         6,859.61           589,834.60
162           589,834.60              1,241.57         6,955.13           598,031.31
163           598,031.31              1,241.57         7,051.79           606,324.67
164           606,324.67              1,241.57         7,149.58           614,715.82
165           614,715.82              1,241.57         7,248.52           623,205.92
166           623,205.92              1,241.57         7,348.64           631,796.13
167           631,796.13              1,241.57         7,449.93           640,487.63
168           640,487.63              1,241.57         7,552.42           649,281.62
169           649,281.62              1,241.57         7,656.11           658,179.31
170           658,179.31              1,241.57         7,761.03           667,181.91
171           667,181.91              1,241.57         7,867.19           676,290.67
172           676,290.67              1,241.57         7,974.59           685,506.84
173           685,506.84              1,241.57         8,083.27           694,831.68
174           694,831.68              1,241.57         8,193.22           704,266.48
175           704,266.48              1,241.57         8,304.48           713,812.53
176           713,812.53              1,241.57         8,417.04           723,471.14
177           723,471.14              1,241.57         8,530.93           733,243.65
178           733,243.65              1,241.57         8,646.16           743,131.39
179           743,131.39              1,241.57         8,762.76           753,135.72
180           753,135.72              1,241.57         8,880.73           763,258.02
181           763,258.02              1,241.57         9,000.08           773,499.68
182           773,499.68              1,241.57         9,120.85           783,862.10
183           783,862.10              1,241.57         9,243.04           794,346.72
184           794,346.72              1,241.57         9,366.67           804,954.96
185           804,954.96              1,241.57         9,491.76           815,688.30
186           815,688.30              1,241.57         9,618.32           826,548.20
187           826,548.20              1,241.57         9,746.38           837,536.15
188           837,536.15              1,241.57         9,875.95           848,653.67
189           848,653.67              1,241.57       10,007.04           859,902.29
190           859,902.29              1,241.57       10,139.68           871,283.54
191           871,283.54              1,241.57       10,273.89           882,799.00
192           882,799.00              1,241.57       10,409.67           894,450.25
193           894,450.25              1,241.57       10,547.06           906,238.88
194           906,238.88              1,241.57       10,686.07           918,166.52
195           918,166.52              1,241.57       10,826.71           930,234.81
196           930,234.81              1,241.57       10,969.02           942,445.40
197           942,445.40              1,241.57       11,113.00           954,799.98
198           954,799.98              1,241.57       11,258.68           967,300.23
199           967,300.23              1,241.57       11,406.08           979,947.89
200           979,947.89              1,241.57       11,555.22           992,744.68
201           992,744.68              1,241.57       11,706.11       1,005,692.37
202       1,005,692.37              1,241.57       11,858.79       1,018,792.73
203       1,018,792.73              1,241.57       12,013.26       1,032,047.57
204       1,032,047.57              1,241.57       12,169.56       1,045,458.71
205       1,045,458.71              1,241.57       12,327.70       1,059,027.98
206       1,059,027.98              1,241.57       12,487.70       1,072,757.26
207       1,072,757.26              1,241.57       12,649.60       1,086,648.43
208       1,086,648.43              1,241.57       12,813.40       1,100,703.40
209       1,100,703.40              1,241.57       12,979.13       1,114,924.10
210       1,114,924.10              1,241.57       13,146.81       1,129,312.49
211       1,129,312.49              1,241.57       13,316.48       1,143,870.54
212       1,143,870.54              1,241.57       13,488.14       1,158,600.25
213       1,158,600.25              1,241.57       13,661.83       1,173,503.66
214       1,173,503.66              1,241.57       13,837.56       1,188,582.79
215       1,188,582.79              1,241.57       14,015.37       1,203,839.74
216       1,203,839.74     &nbs

ekkarill92 answered 2 years ago
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