Sandra religiously spends $20 a weeks on Starbucks coffee, every week of the yea

Question

Sandra religiously spends $20 a weeks on Starbucks coffee, every week of the year. She uses her credit card for such expenses, and although she makes timely payments on her card, she always has a balance on the card that is more than $100. If she made her own starbucks coffee at home, she could save about $15 a week on her coffee-drinking habit, and enjoy even more coffee. She wants to save about $5,000 for a new car in the next 2 years but is struggling to find the money to save. Using and applying Time Value of Money concepts, explain to Sandra why you believe making her own starbucks coffee at home could help her achieve her saving objective for her new car.

Explanation / Answer

Savings per week              15.00 Weeks in a year              52.00 Total Savings in 1 Year(52*15)            780.00 Total Savings in 2 Year(780*2)        1,560.00 Time value of Money for $100 initial balance (100*1.05*1.05)            110.25 Total Interest savings(110.25-100)              10.25 Money at end of year1              780.00 Interest on 780(780*5%)              39.00 Total Amount in 2 years (1560 + 39 + 10.25)        1,609.25

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