Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 10.11P
Summary Introduction
To determine:
The
Introduction:
The difference between the present value of
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering intoa 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfrontcost of $52,000 . If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year after taxes(for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra$22,000 per year (after taxes) over a business career of 37 years. Jenny believes that her opportunity cost of capital is 6.8%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of furthereducation worth the associated costs?
Long-term investment decision, NPV method Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and
needed books for a master's program will have an upfront cost of $52,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity,
treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year over a business career of 36 years. Jenny believes that her
opportunity cost of capital is 5.9%. Given her estimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs?
The following time line depicts the cash flows associated with this problem:
36
Tuition (CFo)
- $102,000
Extra earnings
$21,000 $21,000
$21,000
The net present value (NPV) of entering this MBA program is $
(Round to the nearest dollar.)
Are the benefits of further…
Long-term investment decision, NPV method Jenny Jenks has researched the financial
pros and cons of entering into a 1-year MBA program at her state university. The tuition and
needed books for a master's program will have an upfront cost of $53,000. If she enrolls in
an MBA program, Jenny will quit her current job, which pays $50,000 per year (for simplicity,
treat any lost earnings as part of the upfront cost). On average, a person with an MBA
degree earns an extra $23,000 per year over a business career of 37 years. Jenny believes
that her opportunity cost of capital is 6.4%. Given her estimates, find the net present
value (NPV) of entering this MBA program. Are the benefits of further education worth the
associated costs?
The following time line depicts the cash flows associated with this problem:
Tuition (CFO)
Extra earnings
0
- $103,000
1
2
$23,000 $23,000
...
The net present value (NPV) of entering this MBA program is $
nearest dollar.)
...
37
$23,000
(Round to the
Chapter 10 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - Prob. 1FOPCh. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQCh. 10.3 - Prob. 10.6RQCh. 10.4 - Prob. 10.8RQCh. 10.4 - Prob. 10.9RQCh. 10.4 - Prob. 10.10RQ
Ch. 10.5 - Prob. 1FOECh. 10.5 - How is a net present value profile used to compare...Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - Prob. 10.1STPCh. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. 10.2WUECh. 10 - Prob. 10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. 10.5WUECh. 10 - Prob. 10.1PCh. 10 - Payback comparisons Nova Products has a 5-year...Ch. 10 - Prob. 10.3PCh. 10 - Long-term investment decision, payback method Bill...Ch. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - NPV and EVA A project costs 2,500,000 up front and...Ch. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - Prob. 10.25PCh. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
Knowledge Booster
Similar questions
- Jenny Jenks has researched the financial pros and cons of entering into a 1-year MBA program at her state university. The tuition and needed books for a master's program will have an upfront cost of $51,000. If she enrolls in an MBA program, Jenny will quit her current job, which pays $50,000 per year after taxes (for simplicity, treat any lost earnings as part of the upfront cost). On average, a person with an MBA degree earns an extra $21,000 per year (after taxes) over a business career of 39 years. Jenny believes that her opportunity cost of capital is 5.3%. Given herestimates, find the net present value (NPV) of entering this MBA program. Are the benefits of further education worth the associated costs? The net present value (NPV) of entering this MBA program is Are the benefits of further education worth the associated costs?arrow_forwardMarjorie Jessup has some free cash and is looking at two different investment options. Security Boudreaux Shrimp Farm Nelson Auto Support Price paid today $8,850 $7,460 Cash received at end-of-year $9,115 $8,206 Marjorie can only take on one investment and has decided to use the NPV decision rule to make her choice. If her opportunity cost is 5%, what is the NPV of the best investment?arrow_forwardAnswer in excel 4. A high school student counselor for college education advises a senior that if she attends a private college to which she has been accepted, her annual cost after scholarship will be $12000 for each of four years. After graduating, she can expect to earn for the next twenty years $8000 year more a year than she would have if she did not go to college.a. What is the internal rate of return on this investment?arrow_forward
- answer question in imagearrow_forwardanswer question in imagearrow_forwardComputing the cost of a discount interest loan The financial managers at Montross Corporation are arranging the financing for working capital requirements for the upcoming year. Montross’s local bank offers a discount interest loan at a quoted (simple) interest rate of 4.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Montross applies for a $200,000 loan with a nine-month term. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. (Fill In) Value Interest payment ________________ Amount of cash received ________________ Annual percentage rate (APR) ________________ Effective annual rate (EAR) ________________ What is the nine-month rate if the bank charges a $100 processing fee? Pick one choice. 3.15% 4.12% 3.05% 2.84%arrow_forward
- View Policies Current Attempt in Progress You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $8,000 and is expected to run for 6 years; Model B is more expensive, with a price of $13,000, and has an expected life of 9 years. The annual maintenance costs are $760 for Model A and $600 for Model B. Assume that the opportunity cost of capital is 9 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, eg. 15.25.) EAC of Model Ai EAC of Model B is $ You should buy $ Which one should you buy? eTextbook and Media Attempts: 0 of 2 used Submit Apnearrow_forwardconomics Please help me with this engineering economy question. thank you A. A student takes out $10,000 in loans. If she repays the loan over a 10 year period, calculate the annual payment. Assume 6% interest. B. Sam wants to borrow $20,000 for a car. The payment terms are calculated at 12% interest, compounded monthly, for 5 years. Calculate the monthly payment, choose the closest answer. C. A purchase of a new machine is being evaluated. If we assume 12% annual interest, what is the Equivalent Uniform Annual Cost? Choose the nearest answer. Initial Cost $30,000 Annual Maintenance $1,500 Salvage Value $5,000 Life 6 years D. A maintenance contract is $5,000 per year for 10 years. Assuming 9% annual interest, calculate the present value of this contract. Choose the closest answer.arrow_forwardView Policies Current Attempt in Progress You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Modet A costs $8,500 and is expected to run for 7 years; Model B is more expensive, with a price of $14,900, and has an expected life of 10 years. The annual maintenance costs are $860 for Model A and $640 for Model B. Assume that the opportunity cost of capital is 11 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.) EAC of Model A is %24 EAC of ModelB is %24 Which one should you buy? You should buy eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answerarrow_forward
- Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $180,000. She estimates that the return from owning her own shop will be $55,000 per year. She estimates that the shop will have a useful life of 6 years. Required: 2. Conceptual Connection: Assuming a required rate of return of 8%, calculate the NPV for Evee Cardenas' investment. Round to the nearest dollar. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.$fill in the blank 3 Should she invest?Yes/noarrow_forwardAccounting Eva is considering what major to study in college. Her utility function is based on the income she earns, and is defined by U(I) = 10.7. If she majors in metalworking, she will earn $120,000 per year with probability 1. If she majors in finance, she will earn $250,000 per year with probability 0.5 (assuming the market goes well) and $45,000 with probability 0.5 (if the market tanks and she has to go move in with her parents and work at as an SAT tutor). 1. Is she risk averse, risk neutral, or risk loving? Explain. 2. Write out the equation for her expected utility for each major 3. Which major will she pick? Show your work. 4. Suppose someone offers her insurance for the possibility that the market tanks. This insurance will provide her an amount of income in addition to the wages that makes her indifferent between metalworking and finance. What is this amount, and what is the cost of the insurance? (note: many possible answord)arrow_forwardGive typing answer with explanation and conclusionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub