Alex owns a health club in downtown Los Angeles. He charges his customers an ann

Question

Alex owns a health club in downtown Los Angeles. He charges his customers an annual fee of $510 and has an existing customer base of 650. Paul plans to raise the annual fee by 5.9 percent every year and expects the club membership to grow at a constant rate of 3.2 percent for the next five years. The overall expenses of running the health club are $73,900 a year and are expected to grow at the inflation rate of 2.7 percent annually. After five years, Paul plans to buy a luxury boat for $495,000, close the health club, and travel the world in his boat for the rest of his life.

What is the annual amount that Paul can spend while on his world tour if he will have no money left in the bank when he dies? Assume Paul has a remaining life of 25 years and earns 8.9 percent on his savings.

Explanation / Answer

Look at this link for the answer, it is a spreadsheet https://docs.google.com/spreadsheet/ccc?key=0AqFfmpAerqFgdDRXRWhkdkRfY05IV21xeGx0Z0tocUE#gid=0

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