Corporate Finance: The Core Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition)
4th Edition
ISBN: 9780134409276
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 3, Problem 5P
You have decided to take your daughter skiing in Utah. The best price you have been able to find for a roundtrip air ticket is $359. You notice that you have 20,000 frequent flier miles that are about to expire, but you need 25,000 miles to get her a free ticket. The airline offers to sell you 5000 additional miles for $0.03 per mile.
- a. Suppose that if you don't use the miles for your daughter’s ticket they will become worthless. What should you do?
- b. What additional information would your decision depend on if the miles were not expiring? Why?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Tom is considering purchasing a $22400 car. After five years, he will be able to sell the vehicle for $8000. Petrol costs will be $2000 per year, insurance $600 per year, and parking $600 per year. Maintenance costs for the first year will be $1000, rising by $400 per year thereafter.
The alternative is for Tom to take taxis everywhere. This will cost an estimated $6000 per year. Tom will rent a vehicle each year at a total cost (to year-end) of $600 for the family vacation, if he has no car. If Tom values money at 11 percent annual interest.
What is the annual worth of buying a car?
Should he buy a car? Enter YES or NO in the units box.
Note: (Use a negative sign (-) for an overall cost)
Suppose that your parents are willing to lend you $20,000 for part of the cost of your college education and living expenses. They want you to repay them the $20,000, without any interest, in a lump sum 15 years after you graduate, when
they plan to retire and move. Meanwhile, you will be busy repaying federally guaranteed loans for the first 10 years after graduation. But you realize that you won’t be able to repay the lump sum without saving up. So you decide that you will put aside money in
an interest-bearing account every month for the five years before the payment is due. You feel comfortable with putting aside $275 a month (the amount of the payment on your college loans, which will be paid off after 10 years).
How high an annual nominal interest rate on savings do you need to accumulate the $20,000 in
60 months, if interest is compounded monthly? Enter into a spreadsheet the values d 5 275, r 5 0.05 (annual rate), and n 5 60, and the savings formula with r replaced by r/12 (the…
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $24,500 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $345,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $1,525,000 to his nephew Frodo. He can afford to save $2,600 per month for the next 10 years. If he can earn an EAR of 11 percent before he retires and an EAR of 8 percent after he retires, how much will he have to save each month in Years 11 through 30?
Chapter 3 Solutions
Corporate Finance: The Core Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition)
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- “Suppose that your parents are willing to lend you $20,000 for part of the cost of your college education and living expenses. They want you to repay them the $20,000 without any interest, in a lump sum 15 years after you graduate, when they plan to retire and move. Meanwhile, you will be busy repaying federally guaranteed loans for the first 10 years after graduation. But you realize that you won’t be able to repay the lump sum without saving up. So you decide that you will put aside money in an interest-bearing account every month for the first five years before the payment is due. You feel comfortable with setting aside $275 a month (the amount of the payment on your college loans, which will be paid off after 10 years). How high an annual nominal rate on savings do you need to accumulate the $20,000, in 60 months, if interest is compounded monthly? Enter into a spreadsheet the values of d = 275, r = 0.05 (annual rate), and n = 60, and the savings formula with r replaced…arrow_forwardBilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $27,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $792,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $800,000 to his nephew Frodo. He can afford to save $2,100 per month for the next 15 years. If he can earn a 12 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in Years 16 through 30? show all detailed equations , Financial Calculator not allowed.arrow_forwardRebecca is moving away from New York City for her new job, so she must buy a car rather than rely on public transit. The new car she is considering will cost $ 18,000 to buy, $ 1,500 per year to insure, and $ 500 per year for maintenance after the 3-year warranty expires. She would keep the car for 7 years when it will have a salvage value of $ 7,000. She has found a 2-year-old car that is the same model for $ 13,000. The 3-year warranty is transferrable, so the annual maintenance cost of $500 starts in year 2. Because the car is less valuable, insurance is $300 per year less than for the new car. After 5 years, the vehicle will be 7 years old and will have the same salvage value of $ 7,000.Rebecca is ignoring costs for fuel, oil, tires and registration, because the two vehicles will have the same costs. If her interest rate is 9%, how much cheaper is the used car (difference of EAC of two vehicles)arrow_forward
- Amanda must decide to buy or lease a car that she has selected. She has negoiated a purchase price of $35,000 and can borrow money from her credit union by putting $3,000 down and paying $751.68 per month for 48 months at 6% APR. Alternatively, she could lease the car for 48 months at $495 per month by paying $3,000 capitalized cost reduction and a $350 dispostition fee on the car whic is project to have a residual value of $12,100 at the end of the lease. 1. What is the buying dollar cost? 2. What is the leasing dollar cost?arrow_forwardYour parents have accumulated a $120,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $15,000 to help her get started, and they have decided to take year-end vacations costing $10,000 per year for the next four years. How much money will your parents have at the end of four years to help you with graduate school? You plan to work on a master’s and perhaps a PhD. If graduate school costs $26,353 per year, approximately how long will you be able to stay in school based on these funds? Use 9 percent as the appropriate interest rate throughout this problem. Round all values to whole numbers Flag question: Question 6 Question 64.5 pts What are the funds available after the Nail Salon? Group of answer choices $100,000 $105,000 $72,000 $98,500 Flag question: Question 7 Question 74.5…arrow_forwardBilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $24,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 20 years at an estimated cost of $1,322,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $850,000 to his nephew Frodo. He can afford to save $2,300 per month for the next 20 years. If he can earn a 10 percent EAR before he retires and a 8 percent EAR after he retires, how much will he have to save each month in Years 21 through 30?arrow_forward
- Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $36,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $201 per week plus $1.05 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.46 per mile. Insurance costs for Marsha’s transporter are $1,250 per year. The transporter will probably be worth $16,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Assume a nominal discount rate of 10% and a forecasted inflation rate of 4%. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Hint: All numbers given in the questions are in real terms. Assume CF at end of year, for simplicity. Calculate the NPV of the investment. (Do not round intermediate calculations.…arrow_forwardBilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $24,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $542,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $850,000 to his nephew Frodo. He can afford to save $1,700 per month for the next 15 years. Required: If he can earn a 10 percent EAR before he retires and a 9 percent EAR after he retires, how much will he have to save each month in years 16 through 30?arrow_forwardKathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her husband Stan plan to buy a house in Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pay for closing costs. They are considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly payment for each. Property taxes and insurance will add $1,000 per month to whichever mortgage they choose. What should Kathy and Stan do? 15yr 30yr PMT: Monthly:arrow_forward
- Paula is considering the purchase of a new car. She has narrowed her search to two cars that are equally appealing to her. Car A costs $25,000, and Car B costs $25,400. The manufacturer of Car A is offering 0% financing for 48 months with zero down, while the manufacturer of Car B is offering a rebate of $2000 at the time of purchase plus financing at the rate of 3%/year compounded monthly over 48 months with zero down. If Paula has decided to buy the car with the lower net cost to her, which car should she purchase? (Round numerical values to the nearest cent.) net cost of Car A $ net cost of Car B $ car she should purchasarrow_forwardPaula is considering the purchase of a new car. She has narrowed her search to two cars that are equally appealing to her. Car A costs $25,000, and Car B costs $25,300. The manufacturer of Car A is offering 0% financing for 48 months with zero down, while the manufacturer of Car B is offering a rebate of $2000 at the time of purchase plus financing at the rate of 3%/year compounded monthly over 48 months with zero down. If Paula has decided to buy the car with the lower net cost to her, which car should she purchase? (Round numerical values to the nearest cent.) net cost of Car A $ net cost of Car B $arrow_forwardYou have been transferred to New Mexico for your post-graduate internship. You and your spouse have 2 children. You decide you need a home. The current owner of the home will sell it to you for $120,000, or you can rent it for $900 per month on a 1-year lease. You believe you could resell the home after 1 year for $130,000. Should you purchase the home or rent it?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
How to build an investment portfolio; Author: The Finance Storyteller;https://www.youtube.com/watch?v=K4mWd2zBYVk;License: Standard Youtube License