John will invest $100, 000 in buying the rights to a water well. In perpetuity, the water well makes $20,000 in revenue each year, but it carries an annual cost of $5,000 on maintenance. Also, John must pay the rights of the water well this year, but the revenue and maintenance costs start next year. If the discount rate is 10%, what is the net present value of the investment?

John will invest $100, 000 in buying the rights to a water well. In perpetuity, the water well makes $20,000 in revenue each year, but it carries an annual cost of $5,000 on maintenance. Also, John must pay the rights of the water well this year, but the revenue and maintenance costs start next year. If the discount rate is 10%, what is the net present value of the investment?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

Lorenz curves also can be used to provide a relative measure of the distribution of the total assets of a country. Using data in a report by the economic committee of a certain country, an economist produced the following Lorenz curves for the distribution of total assets in the country in 1963 and 1983, shown below. f(x) = x10 Lorenz curve for 1963 g(x) = x13 Lorenz curve for 1983 Find the Gini index of income concentration for each Lorenz curve and interpret the results. .... What is the Gini index for 1963? (Round to three decimal places as needed.) What is the Gini index for 1983? (Round to three decimal places as needed.) Interpret your results. O A. Total assets were more equally distributed in 1963 O B. Total assets were more equally distributed in 1983 O c. Total assets were distributed the same in 1963 as in 1983.
Economics In 54 months time you expect a cash flow of $3 million. Calculate it’s present value (PV) given the 54-month interest rate is currently 4%, with a volatility of 120 basis points (bps). Explain, using equations with properly-defined mathematical notation, how to map this cash flow to vertices at 4 years and 5 years, in such a way that the volatility of the present value of the mapped cash flow remains at 120 bps. Suppose the 4-year rate has a volatility of 110 bps and the 5-year rate has a volatility of 150 bps, and their correlation is 0.9. How much should be mapped to each vertex. Give your answer in PV terms and round your answers to whole $ values.
You have a five year old child and you have been thinking about how you are going to help her pay her way through college. You look up some safe investments; like savings bonds. Given that the future pay-off of the bond is $8,500 over five years at 5% interest, what should you expect to presently pay (present value) for the bond? True Car of Columbia, SC advertised a Ford EcoSport (2019) at $23,178. The EcoSport is a sporty smaller SUV that is perfect for the recent college graduate/young professional. Given that the repayment period is 5 years and the interest on the loan is 3.99%, what are the likely monthly car payments on this loan? The average median 2019 price of a home here in Columbia, SC was around $145,000. That price is not bad at all (surprisingly good!!). Given that the interest on the housing loan is roughly 3.92% and the deal is over 30 years, what should you approximately expect your monthly payments to be if you decide to purchase a house…
John is a very cost-conscious investor. His rule of thumb is that it costs $200 per year, starting in the first year of vehicle life to maintain an automobile. This expense increases by $200 each year over the life of the car. John is now considering the purchase of a five-year old car with 50,000 miles on it for $9,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for seven years? John's interest rate is 6% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 6% per year. John will have to set aside $ to pay for maintenance. (Round to the nearest dollar.)
John is a very cost-conscious investor. His rule of thumb is that it costs $300 per year, starting in the first year of vehicle life to maintain an automobile. This expense increases by $300 each year over the life of the car. John is now considering the purchase of a five-year old car with 40,000 miles on it for $9,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for six years? John's interest rate is 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. John will have to set aside $ to pay for maintenance. (Round to the nearest dollar.)
John is a very cost-conscious investor. His rule of thumb is that it costs $300 per year, starting in the first year of vehicle life to maintain an automobile. This expense increases by $300 each year over the life of the car. John is now considering the purchase of a four-year old car with 30,000 miles on it for $6,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for eight years? John's interest rate is 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. John will have to set aside $ to pay for maintenance. (Round to the nearest dollar.)
John is a very cost-conscious investor. His rule of thumb is that it costs $300 per year, starting in the first year of vehicle life to maintain an automobile. This expense increases by $300 each year over the life of the car. John is now considering the purchase of a six-year old car with 40,000 miles on it for $7,000. How much money will John have to set aside now to pay for maintenance (as a lump sum) if he keeps this car for seven years? John's interest rate is 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. John will have to set aside $ to pay for maintenance. (Round to the nearest dollar.)
A man invests his savings in two accounts, one paying 6 percent and the other paying 10 percent simple interest per year. He puts twice as much in the lower-yielding account because it is less risky. His annual interest is 6534 dollars. How much did he invest at each rate? Your answer is total in the account paying 6 percent interest is total in the account paying 10 percent interest is
George wants to retire at 65 with $1,000,000 in savings. He plans to deposit a lump sum on his birthday each year. How much will he need to invest each year if he starts saving at 25? 35? 45? Assume an interest rate of 6%
An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What i are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? ○ 3.945% 4.152% 4.067% 04.186 % Another bank is also offering favorable terms, so Rahul decides to take a loan of $12,000 from this bank. He signs the loan contract at 5% comanded daily for 12 months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days,…
QUESTION 6 What is the net present value of receiving $250 in 5 years from now if the interest rate is 12%? 141.86 142.56 140.34 139.55
Suppose you want to realize a future value of $150,000 in 30 years on an investment you make. The average annual rate of return is 8.75%. What will be the present value of your investment?