Q2 (a)Tully is a graduating high school senior deciding between three alternative combinations ofeducation-work options. He could start working immediately and earn $30,000 working in aburrito truck in period one. His salary would increase to $60,000 in period 2 as he would becomechef, and then fall in period 3 to $50,000 as he would become too physically tired to work toomuch in the kitchen.His first alternative is to spend $15,000 to attend Da-Lousy University for economics and earn anundergrad degree in period 1. Upon obtaining his degree he would earn $80,000 as an economistfor periods 2 and 3.The final option is for Tully to complete a doctorate degree in economics after finishing hisundergrad degree. There would be no direct costs as he would get scholarships, but he could notwork in period 2 while he completed his PhD. After finishing his PhD he would earn $200,000 asan Econ Prof at Kings University in period 3.His interest rate is 15 percent per period. What should Tully choose to do?How does the discount rate influence his decision? Carefully explain.

The rate at which cash flows are discounted is known as the discount rate. It can be the internal…

The final option is for Tully to complete a doctorate degree in economics after finishing his undergrad degree. There would be no direct costs as he would get scholarships, but he could not work in period 2 while he completed his PhD. After finishing his PhD he would earn $200,000 as an Econ Prof at Kings University in period 3. His interest rate is 15 percent per period. What should Tully choose to do? How does the discount rate influence his decision? Carefully explain.

The final option is for Tully to complete a doctorate degree in economics after finishing his undergrad degree. There would be no direct costs as he would get scholarships, but he could not work in period 2 while he completed his PhD. After finishing his PhD he would earn $200,000 as an Econ Prof at Kings University in period 3. His interest rate is 15 percent per period. What should Tully choose to do? How does the discount rate influence his decision? Carefully explain.

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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Charlie is planning to buy a small apartment complex; the complex will cost $1,000,000 and they will generate $450,000 in profits over the next three years. The complex will also need $50,000 in renovations during year 4. Charlie's required rate of return is 17%. What is the NPV on Charlie's investment ___? and should Charlie purchase the apartments___? yes or no
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
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