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A 35-year-old businessman, his current salary is $100,000 and is increasing at 5% annually, and he has a fortune of $1 million. His plan is to retire at the age of 55. This man is considering allocating $500.000 of his wealth for a project that takes him 5

A 35-year-old businessman, his current salary is $100,000 and is increasing at 5% annually, and he has a fortune of $1 million. His plan is to retire at the age of 55. This man is considering allocating $500.000 of his wealth for a project that takes him 5

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A 35-year-old businessman, his current salary is $100,000 and is increasing at 5% annually, and he has a fortune of $1 million. His plan is to retire at the age of 55. This man is considering allocating $500,000 of his wealth for a project that takes him 5 years, and therefore he will give up his current salary for five years in exchange for a new salary of $80,000 annually, which remains fixed during the project implementation period. If the required rate of return on the investment for this entrepreneur is 11%, it is required to calculate the value of the entrepreneur's commitment to the project. If the entrepreneur continues in the project for 5 years and the project ends, and the entrepreneur decides to return to his first job, he will receive a salary of $95,000 annually with a growth rate of 4% during the remaining 15 years of his career. The current value of the project's human capital is required to be calculated. What is the difference between the present value of human capital if the entrepreneur decides to stay in the job in exchange for a 5-year commitment to the project?
Transcribed Image Text:A 35-year-old businessman, his current salary is $100,000 and is increasing at 5% annually, and he has a fortune of $1 million. His plan is to retire at the age of 55. This man is considering allocating $500,000 of his wealth for a project that takes him 5 years, and therefore he will give up his current salary for five years in exchange for a new salary of $80,000 annually, which remains fixed during the project implementation period. If the required rate of return on the investment for this entrepreneur is 11%, it is required to calculate the value of the entrepreneur's commitment to the project. If the entrepreneur continues in the project for 5 years and the project ends, and the entrepreneur decides to return to his first job, he will receive a salary of $95,000 annually with a growth rate of 4% during the remaining 15 years of his career. The current value of the project's human capital is required to be calculated. What is the difference between the present value of human capital if the entrepreneur decides to stay in the job in exchange for a 5-year commitment to the project?
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