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 $3,000. However, if you cannot ski because the helicopters cannot fly due tobad weather, there is no snow, or you get sick, you do not get a refund. There is a 40% 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 $5,500. You estimatethat the pleasure you get from heli-skiing is worth $7,600 per week to you (if you had to pay more than that, you would choose not to go). If your cost of capital is 17% per year, should you book ahead or wait?You shouldbecause the NPV of this choice is $(Round to two decimal places.)book aheadwait

Answered: It is the beginning of September and…

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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A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you $25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is 6 percent?
Assume that in October you bought a $450 nonrefundable airline ticket to Telluride,Colorado, for a 5-day/4-night winter ski vacation. You now have an opportunity tobuy an airline ticket for a 5-day/4-night winter ski vacation in Stowe, Vermont, for$400 that includes a free ski lift ticket. The price of your lift ticket for the Telluridevacation would be $300. The price of a hotel room in Telluride is $180 per night. Theprice of a hotel room in Stowe is $150 per night. Which of the following costs is notrelevant in a decision of whether to proceed with the planned trip to Telluride or tochange to a trip to Stowe?a. The $450 airline ticket to Telluride.b. The $400 airline ticket to Stowe.c. The $300 lift ticket for the Telluride vacation.d. The $180 per night hotel room in Telluride.
After deciding to buy a new car, you can either lease the car or purchase it on a three- year loan. The car you wish to buy costs $35,000. The dealer has a special leasing arrangement where you pay $99 today and $499 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at a 6 percent APR. You believe you will be able to sell the car for $23,000 in three years. What break-even resale price in three years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Break-even sale price What is the present value of purchasing the car? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) $ Present value
After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs $35,000. The dealer has a special leasing arrangement where you pay $99 today and $499 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at a 6% APR. You believe you will be able to sell the car for $23,000 in three years. All final answers are rounded to the nearest dollar. Choose all correct statements from the below. Question 6 options: If you sell the car after three years, the PV of purchasing the car is $15,780. Purchasing is always preferable if the APR is below 6%. The PV of leasing the car is $17,502. If the APR increases to 8.4%, you should lease the car. You should lease the car given that the PV of leasing is higher.
You are considering having a Honda hybrid car for three years during your working holiday in Australia. The car costs $49,000. You can either lease (i.e. an agreement by which you pay periodic fees to use the asset, but you do not own the asset) the car or purchase the car. The car dealer has the following arrangement for you: Option 1 (Leasing the Car): You pay $5,100 today and $545 at the end of each month for the next three years, last payment occurs at the end of year 3 . Option 2 (Purchasing the Car): You pay $49,000 now for the car in one lump sum, but you will be able to resell the car for $32,000 at the end of year 3 . a) Draw the Timeline to illustrate the cash flow for Option (1) and Option (2). b) Given the relevant interest rate is 5.3% compounded monthly, by computing the PV should you lease or purchase the car?
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Your rental company wants to purchase a new car for its car rental business. The car costs $20,000. It will be obsolete in three years. Your options are to borrow the money at 10% or lease the car. If you lease it, the payments will be $7,500 per year, payable at the beginning of each year. If you buy the car, you can apply a CCA rate of 30% per year. The tax rate is 35%. Assume that the car has a projected salvage value of $700 and the asset pool is closed, what would be NAL. Should you buy or lease? Why?
You decide to do some remodeling in the kitchen. Your parents agree to lend you the money, but you insist on paying them interest. The agreement is that they will lend you $6000.00 at a simple interest rate of 1.5% per year. In how many months will the interest be $360.
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After deciding to acquire a new car, you realize you can either lease the car or purchase it with a two-year loan. The car you want costs $34,000. The dealer has a leasing arrangement where you pay $97 today and $497 per month for the next two years. If you purchase the car, you will pay it off in monthly payments over the next two years at an APR of 6 percent. You believe that you will be able to sell the car for $22,000 in two years. What is the present value of purchasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value of lease $ What is the present value of leasing the car? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value of purchase $ What break-even resale price in two years would make you indifferent between buying and leasing? (Do not round intermediate calculations and round your answer to 2…
Candace just accepted her first job paying a $48,000 salary and is planning to take a $5,000 vacation cruise throughout Europe for 2 weeks. She is debating whether to take the trip now and finance it with a promotion from the travel company offering no payments for a year at a monthly periodic rate of 1%, or wait the year and save to pay for the trip. If she takes the trip now she will start her career 2 weeks late. Approximately how much would she save by waiting a year and not taking her unpaid time from work to travel? $2,480. $634. $1,557. $600.
Tracy wants to buy a new car. She is provided with two options by the dealership: $6,000 cash back or 0% financing for 60 months on the $50,000 car that she wants to buy, Tracy determines that the cash back is the best option, as her alternative choice is to borrow from the bank at 0.99% APR, compounded monthly, for 60 months. Prior to finalizing her choice, the bank calls Tracy back and tells her that because of Federal Reserve rate hikes, the new interest rate at the bank is 5.99% APR. With this new interest rate, should Tracy reconsider her choice of the cash back option? O No, the value of the 0% financing decreases with the higher rate at the bank O Yes, the cash back option now has higher present value O Yes, the value of the 0% financing increases with the higher rate at the bank O No, the cash back option now has lower present value

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