Use Worksheet 11.1 Ashley Corwin is a young career woman who’s 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.

Worksheet 11.1

a. How much would Ashley 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. How about 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 Ashley has an idea of how much she needs to save, briefly explain how she could use an investment plan to help reach her objective.

Transcribed Image Text:

DETERMINING AMOUNT OF INVESTMENT CAPITAL Financial goal: To accumulate $160,000 in 18 years for the purpose of meeting the cost of daughter's college education. 1. Targeted Financial Goal (see Note 1) 2. Projected Average Return on Investments A. Finding a Lump Sum Investment: 3. Future Value Factor, from Appendix A $ 160,000 6% based on years to target date and a projected average return on investment of % 0.000 4. Required Lump Sum Investment line 1+ line 3 B. Making a Series of Investments over Time: 5. Amount of Initial Investment, if any (see Note 2) 6. Future Value Factor, from Appendix A based on 18 years of target date and a projected average return on investment of 6% 7. Terminal Value of Initial Investment line 5 line 6 8. Balance to Come from Savings Plan line 1- line 7 9. Future Value Annuity Factor, from Appendix B based on 18 years to target date and a projected average return on investment of 6% 10. Series of Annual Investments Required over Time line 8+ line 9 7,500 2.854 21,408 $138,592 30.91 4.484.00 Note 1: The "targeted financial goal" is the amount of money you want to accumulate by some target date in the future. Note 2: If you're starting from scratch-i.e., there is no initial investment-enter zero on line 5, skip lines 6 and 7, and then use the total targeted financial goal (from line 1) as the amount to be funded from a savings plan; now proceed with the rest of the worksheet.