You Want to Buy a New Car in Five Years

question 12

Multiple Choice

You want to buy a new car in five years. You want to have saved $25,000 by then. You can invest $4,000 at the end of each of the next five years at an interest rate of 6% compounded annually. Will you have enough money at the end of the fifth year?

• A) No. You are short $2,452.
• B) Yes. You have $1,532 more than you need.
• C) No. You are short $1,532.
• D) Yes. You have $2,452 more than you need.
• E) None of the other answers are correct.

---

Definitions:

Sources of Cash

Various origins from which a company or individual may receive cash, such as operations, financing activities, and investing activities.

Cash and Accounts Receivable

Liquid assets comprising of cash available and money owed by customers to a company for goods or services provided.

Accounts Payable

Liabilities representing amounts owed by a company to creditors for purchases or services received.

Inventory

The raw materials, work-in-process products, and finished goods considered part of a business's assets that are ready or will be ready for sale.