PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley

Exercise 1

Use Worksheet 11.1. Kate Adams is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, what she would really like to do is open a bookstore of her own. She would like to open her store in about 8 years and figures she'll need about $50,000 in capital to do so. Given that she thinks she can make about 10% on her money, use Worksheet 11.1 to answer the following questions.
a. How much would Kate have to invest today, in one lump sum, to end up with $50,000 in 8 years?
b. If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in 8 years?
c. If she already has $10,000 socked away, how much would she have to put away annually to accumulate the required capital in 8 years?
d. Given that Kate has an idea of how much she needs to save, briefly explain how she could use an investment plan to help reach her objective.