Public Finance (The McGraw-Hill Series in Economics)
10th Edition
ISBN: 9780078021688
Author: Harvey S Rosen, Ted Gayer
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 8, Problem 4DQ
Suppose that you are planning to take a year vacation to bike across the United States. Someone is willing to you a new bicycle for $500. At the end of the year, you expect to resell the bicycle for $350. The benefit to you of using the bicycle is the equivalent of $170.
- What is the
internal rate of return ? - If the discount rate is 5 percent, should you buy the bicycle?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You are thinking about buying a rental property. Because of the difficulty getting a loan, you are going to pay $350,000 in cash for the house today. You think you can rent out the property for the next 10 years, receiving $1,400 in cash each month after your expenses and taxes. At the end of ten years, you believe you will be able to sell the property for $425,000. If your discount rate is 7.2% annually with monthly compounding, what is the NPV of the rental property? (Assume first payment is 1 month from today)
Suppose you decide to wait 5 years to save up before buying the house. You are able to put a down payment of $30,000 on the house, so that you only need to borrow $170,000 from the bank. Assume the interest rate is still the same, but you are now in a better financial position, and you can pay off the loan in 240 equal monthly payments.
Answer the following questions about this loan.
After making 240 monthly payments, how much of what you paid the bank was interest?
$ . ROUND TO THE NEAREST CENT.
THANKS APPRECIATE THE HELP!!!
Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual cash benefits of $1,200 at the end of each year, and assume that you can sell the car for proceeds of $5,000 at the end of the planned 5-year ownership period. All funds which are you use has 6% discount rate. What should be the required return applicable to valuing the car.
Chapter 8 Solutions
Public Finance (The McGraw-Hill Series in Economics)
Additional Business Textbook Solutions
Find more solutions based on key concepts
Risk Premiums and Discount Rates. Top hedge fund manager Sally Buffit believes that a stock with the same marke...
FUNDAMENTALS OF CORPORATE FINANCE
Whether callable bonds have a higher or lower yield than otherwise identical bonds without a call feature. Intr...
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
How did the recession of 2007-2009 compare with other recessions since the Great Depression in terms of length?...
Foundations of Financial Management
The value of the shareholders equity account of a firm. Introduction: Shareholders’ equity refers to the residu...
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
The current stock price. Introduction: Stock price is a price of a share on the number of saleable stock of a c...
Fundamentals of Corporate Finance
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 you have opened an MRI clinic and you are able to purchase a new MRI machine for $1 million. You plan to see 2000 patients per year, and you have determined that your MRI machine at that rate of use should last 10 years. Given a 5% rate of interest, use an annuity calculation to estimate the annual cost of an MRI per patient. Suppose that you could use the machine for 3 years and then sell it for $500,000. What would your annual cost per patient be in that case? Suppose you know that inflation is going to be 10% per year and that you will use the machine for 3 years and then be able to sell it for $800,000 (note that the $800,000 is measured in units of dollars 3 years from now). What then is your annual cost per patient and is your answer in dollars today or dollars three years from now?arrow_forwardYou are considering purchasing a car in 4 years, anticipating a purchase price of $40,000. a. How much do you need to deposit in an account today, if you want to have $40,000 in the account in 4 years, assuming the account earns 5% annual interest rate? (Assume annual compounding)b. If you deposit $30,000 in the account today, what rate of interest would you need to earn annually in order to have exactly $40,000 in the account in 4 years? (Assume annual compounding)c. If your account earns 0.25% of interest every month, and if you make an initial deposit of $10,000 today, how much do you need to deposit every month in your account in order to have exactly $40,000 in 4 years? (Assume monthly compounding)arrow_forwardConsider the following situation, which requires comparison of options.Cousin Thaddeus offers to pay you $3,000 every year for the next 10 years if you give him$20,000 now. Let us suppose that your MARR is 10%, and that a local bank is offering this rate.How can you determine whether Cousin Thaddeus’ offer is better than putting the money in the bank?arrow_forward
- . You are going to buy a new rooftop tent for your SUV/Truck. You can either pay $2,100today for the tent or you can pay $750 today, $800 a year from today, and $1,000 twoyears from today. If the discount rate is 13%, which option would you prefer?arrow_forwardSuppose that you are thinking about buying a car and have narrowed down your choices to two options. The new-car option: The new car costs $26,000 and can be financed with a four-year loan at 7.75%. The used-car option: A three-year old model of the same car costs $16,000 and can be financed with a four-year loan at 5.28%. What is the difference in monthly payments between financing the new car and financing the used car? (Round to the nearest cent as needed.)arrow_forwardYou want to save money from your businessoperation to replace a truck that has been used indelivery. The truck will be replaced after 12 yearsfrom now and the replacement cost would be about$60,000. If you earn 5% interest on your savings,how much must you deposit at the end of each yearto meet the needs?arrow_forward
- Suppose you want to buy a $153,000 home. You found a bank that offers a 30-year loan at 4.5% APR. What will be your monthly payment? (Round to the nearest cent.) How much would you end up paying the bank for the home after 30 years? (Round to the nearest cent.) Suppose you wanted to reduce the time of your loan to 25 years. What would be your new monthly payment? (Round to the nearest cent.) How much would you end up paying the bank for the home after 25 years? (Round to the nearest cent.) How much did you save by reducing the time of your mortgage loan? (Round to the nearest cent.)arrow_forwardAs part of your financial planning, you wish to purchase a new car exactly 5 years from today. The car you wish to purchase costs $14,000 today, and your research indicates that its price will increase by 2% to 4% per year over the next 5 years.a. Estimate the price of the car at the end of 5 years if inflation is (1) 2% per year and (2) 4% per year.b. How much more expensive will the car be if the rate of inflation is 4% rather than 2%?c. Estimate the price of the car if inflation is 2% for the next 2 years and 4% for 3 years after that.arrow_forwardYou are planning on buying a new vehicle in 5 years after you receive your PhD. You plan on spending $35,600 for the car. Even though you are still in school. You think you can put some money aside each year because you work as a lab assistant and have a well-paying summer job. Your EGM 320 instructor said you could consider an interest rate of 6.5% each year as the market interest rate. How much do you have to set aside each year to have the amount of cash to pay for the car?arrow_forward
- Suppose you want to buy a $148,000 home. You found a bank that offers a 30-year loan at 3.5% APR.What will be your monthly payment? (Round to the nearest cent.)$How much would you end up paying the bank for the home after 30 years? (Round to the nearest cent.)$Suppose you wanted to reduce the time of your loan to 25 years. What would be your new monthly payment? (Round to the nearest cent.)$How much would you end up paying the bank for the home after 25 years? (Round to the nearest cent.)$How much did you save by reducing the time of your mortgage loan? (Round to the nearest cent.)$arrow_forwardYou are thinking of renovating a basement apartment beneath your house, which you currently rent out for $521 per month. If you renovate the apartment, you could get $729 per month instead, starting next month. Assume renovations would cost $10,000, paid immediately, and would take very little time to complete so there’d be no delay in rental income. Assume monthly rental income would last for the foreseeable future (aka forever). If the applicable discount rate is 6% per year, what is the net present value (NPV) of the renovations? Round to the nearest cent.arrow_forwardImagine that you are trying to evaluate the economics of purchasing an automobile. Assume that you expect the car to provide annual after tax cash benefits of $1200 and that you can sell the car for after tax proceeds of $5000 at the end of the planned five year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes. What is the maximum price you would be willing to pay to acquire the car?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
What is an Annuity? Are Annuities a Good Investment? Basics of an Annuity, a Whiteboard Animation; Author: Learn to invest;https://www.youtube.com/watch?v=Wq7nq8Gx78w;License: Standard YouTube License, CC-BY