PFIN 3rd Edition by Lawrence Gitman,Michael Joehnk,Randall Billingsley

Exercise 1

Use Worksheet 11.1. Linda Scales is now employed as the managing editor of a wellknown 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 eight years and figures she'll need about $50,000 in capital to do so. Given that she thinks she can make about 10 percent on her money, use Worksheet 11.1 to answer the following questions.
a. How much would Linda have to invest today, in one lump sum, to end up with $50,000 in eight years?
b. If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in eight 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 eight years?
d. Given that Linda has an idea of how much she needs to save, briefly explain how she could use an investment plan to help reach her objective.