years to pay for his college tuition. He says that he typically earns around $300 per day, and all he has t do is drive around in his car for 12 hours a day. He says if I do this everyday, I can make $9,000 per month, isn't that great? My rent is only $1,000 per month, and my tuition costs $6,000 per year. I'm set! As an analyst, you naturally start to ask him questions. For example: How many miles is he driving? He tells you he's been driving roughly 1000 miles per week. How much is he spending on gas? He's not sur but he tells you that he's been getting roughly 20 miles per gallon, and gas typically costs him $5.00 per gallon. What about maintenance on his car? He says that the manufacturer recommends that he change the oil and filters on his car every 10000 miles and typically costs him $100. Is your friend considering everything necessary to determine if this a good plan or not?
years to pay for his college tuition. He says that he typically earns around $300 per day, and all he has t do is drive around in his car for 12 hours a day. He says if I do this everyday, I can make $9,000 per month, isn't that great? My rent is only $1,000 per month, and my tuition costs $6,000 per year. I'm set! As an analyst, you naturally start to ask him questions. For example: How many miles is he driving? He tells you he's been driving roughly 1000 miles per week. How much is he spending on gas? He's not sur but he tells you that he's been getting roughly 20 miles per gallon, and gas typically costs him $5.00 per gallon. What about maintenance on his car? He says that the manufacturer recommends that he change the oil and filters on his car every 10000 miles and typically costs him $100. Is your friend considering everything necessary to determine if this a good plan or not?
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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Transcribed Image Text:You have a friend who has recently started to drive for a ride-sharing company. He is boasting about all of
the money that he makes and he says that for the next four years he plans to drive for Uber for the four
years to pay for his college tuition. He says that he typically earns around $300 per day, and all he has to
do is drive around in his car for 12 hours a day. He says if I do this everyday, I can make $9,000 per
month, isn't that great? My rent is only $1,000 per month, and my tuition costs $6,000 per year. I'm set!
As an analyst, you naturally start to ask him questions. For example: How many miles is he driving? He
tells you he's been driving roughly 1000 miles per week. How much is he spending on gas? He's not sure,
but he tells you that he's been getting roughly 20 miles per gallon, and gas typically costs him $5.00 per
gallon. What about maintenance on his car? He says that the manufacturer recommends that he changes
the oil and filters on his car every 10000 miles and typically costs him $100.
Is your friend considering everything necessary to determine if this a good plan or not?
Because you're a good friend, you try to help him understand all of the hidden costs that he is not
considering. You help him estimate all of the additional maintenance costs and depreciation costs, and
factor for opportunity costs, and build a pro forma model to help him understand whether this is a good
plan or not.
What are the issues that your friend should consider? Should he consider modifying his plan, or
abandoning it all together? Build a pro forma financial model to justify your recommendations.
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