An elite law school will charge you $36,000.00 for your first year of tuition. This is due at the beginning of the year. You anticipate tuition to increase by 3.00% each year going forward. You will spend three years in the law program. You are unsure what discount rate to use to value the opportunity. You have a conservative discount rate, 6.00%, and an aggressive rate of return, 9.00%. Using the aggressive rate of return, what is the value today of your law school tuition?
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- Joseph migrated to Canada from Ghana 5 years ago. He currentlyworks in sales but is considering quitting work for two years to earn an MBA degree. His current job pays $40,000 per year (after taxes), but he could earn $55,000 per year (after taxes) if he had an MBA. Tuition is $10,000 per year, and the cost of an apartment near campus is equal to the $10,000 he is currently paying. His discount rate is 6 percent per year. He just turned 48 and plans to retire when he turns 60, whether or not he earns his MBA degree. Based on this information, should he go for an MBA degree? Explain carefully with appropriate calculations. Using time value of money to solve.Your company has invested $5 million in developing a new product, but the development process isn’t quite complete. You have just learned from your marketing team that other companies have introduced similar products. As a result of this competition, the expected sales of your new product once you have completed development and actually begun production is now just $3 million. Your production team tells you that it will cost another $1 million to finish development and make your product. The decision is now yours: should you give the go-ahead to complete development of the product? Why or why not? In the event that your production team’s cost estimate is inaccurate, what is the most that your company should pay to complete development? Why? Be sure to incorporate (and define) the relevant concept into your answer.Imagine that at age 25 you have the choice to begin to deposit $8000 per year into your 401k. You will retire at 65. The 401k grows at (an average of) 6% per year (it compounds yearly). Say that your utility for money is just the value of money: u(x) = x. Say that you have a “standard” discount rate of 0.95, which choice would an individual make? What is the implied break-even \beta if you have quasi-hyperbolic preferences?
- Question attached In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $70 per room per night to service. You spent $25.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $20 million.If the estimated demand is 10,000 room-nights, the break-even price is $per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)Ben is a retired budget auditor who is currently looking for a new investment opportunity. He is considering two investments: Calzone Zone, a small restaurant specialising in calzone, and Icetown, a skating and curling rink. The projected cash flows of the two investments are shown below. Ben can only choose one projects, so he asks for your help and advice in reaching a decision on which investment to accept. He tells you he requires a 5% rate of return on his investment. Calzone Icetown Zone Cash flows £000 £000 Initial investment (885) 150 (300) 215 Cash flows year 1 Cash flows year 2 Cash flows year 3 Cash flows year 4 Cash flows year 5 195 215 200 230 265 215 215 (585) Assume the initial investment arises at the start of the first year of the project and all the subsequent cash flows occur at the end of the year. Question A. What are the economic factors reflected in the required rate of return? Discuss the likely effects of the economic shock brought by the COVID-19 pandemic on…Suppose that in year 1, Acme Corporation can make a real (inflation-adjusted) return on an investment of 3 percent. Assume the nominal interest rate is 8 percent and the inflation rate is 4 percent. Instructions: Enter your answer as a whole number. a. Using this information, we can conclude that the investment would not be profitable b. Suppose that in year 2, the real interest rate changes to 7 percent while inflation remains constant at 4 percent. In year 2, the nominal interest rate must be percent.
- A Flexible Savings Account (FSA) plan allows you to put money into an account at the beginning of the calendar year that can be used for medical expenses. This amount is not subject to federal tax. As you pay medical expenses during the year, you are reimbursed by the administrator of the FSA until the money is exhausted. From that point on, you must pay your medical expenses out of your own pocket. On the other hand, if you put more money into your FSA than the medical expenses you incur, this extra money is lost to you. Your annual salary is $80,000 and your federal income tax rate is 30%. [1] Assume that your medical expenses in a year are normally distributed with mean $2000 and standard deviation $500. Build an @RISK model in which the output is the amount of money left to you after paying taxes, putting money in an FSA, and paying any extra medical expenses. Experiment with the amount of money put in the FSA, using a RISKSIMTABLE function. [2] Rework part a, but this time assume…A sales position is offered at a pharmaceutical company with two salary options. Option A would pay an annual base salary of $15,000 plus a commission of 7% on sales. Option B would pay an annual base salary of $30,000 plus a commission of 6% on sales. The equation y 15,000+0.07x models salary Option A and the equation y 30,000+0.06x models salary Option B, where x represents the amount of annual sales and y represents the annual salary in both equations. Determine the annual sales required for the options to result in the same annual salary. The annual sales required would be $ (Type an integer or a decimal)In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $80 per room per night to service. You spent $25.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $20 million. If the estimated demand is 10,000 room-nights, the break-even price is:__?____per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)
- William purchased a universal life policy on his own life. When his son Ben turned 25, William changed the life insured to Ben's life, and transferred ownership of the policy to Ben. The policy has a cash surrender value of $50,000 and an adjusted cost basis of $22,000. Ben took a policy loan of $10,000 for each of the next five years to travel around the world. He surrendered the policy after five years. Which of the following statements is true? a) William would have $28,000 of taxable income as a result of the transfer. b) Ben would have $10,000 of taxable income for each of the five years. c)Ben would have about $5,600 of taxable income for each of the five years. d) William would have $22,000 of taxable income as a result of the transfer.Assume that your rich aunt has given you $25,000 in a gift. You have come up with three ways to spend (or invest) the capital. First, you want (but do not need) a new car to make your home and social life brighter. Second, you can invest the money in the common stock of a high-tech company. Price is expected to grow by 20 percent a year, but this option is very risky. Third, you can put the money into a three-year deposit certificate with a local bank and receive 6 percent annually. The third alternative carries little risk. a. If you plan to buy the new vehicle, what is the cost of that option for the opportunity? Explain what you think in your own words.b. If you invest in the popular high-tech stock, what is the cost of that option for the opportunity? Explain what you think in your own words.Consider a EITC program that offers a guaranteed income level. Assume a person can receive a maximum EITC benefit of $5,000 when earned income is $0; however, the maximum benefit is reduced at a 40% phase-out rate for each dollar earned beyond $0. What is the break-even point?