It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $3300. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 35% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are well, the vacation will cost you $4700. You estimate that the pleasure you get from heli-skiing is worth $7900 per week to you (if you had to pay more than that, you would choose not to go). If your cost of capital is 8% per year, should you book ahead or wait?
It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $3300. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 35% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are well, the vacation will cost you $4700. You estimate that the pleasure you get from heli-skiing is worth $7900 per week to you (if you had to pay more than that, you would choose not to go). If your cost of capital is 8% per year, should you book ahead or wait?
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
Problem 1PS
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M6
Transcribed Image Text:It is the beginning of September and you have
been offered the following deal to go heli-skiing. If
you pick the first week in January and pay for your
vacation now, you can get a week of heli-skiing for
$3300. However, if you cannot ski because the
helicopters cannot fly due to bad weather, there is
no snow, or you get sick, you do not get a refund.
There is a 35% probability that you will not be able
to ski. If you wait until the last minute and go only if
you know that the conditions are perfect and you
are well, the vacation will cost you $4700. You
estimate that the pleasure you get from heli-skiing
is worth $7900 per week to you (if you had to pay
more than that, you would choose not to go). If
your cost of capital is 8% per year, should you book
ahead or wait?
1. NPV =
2. Book ahead or wait?
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