Chapter 1, Problem 10P

Mary is considering opening a hobby and craft store. Mary plans to operate the business for six years. Mary requires a minimum 6% return on this investment. (Ignore income taxes in this problem). The data pertaining to her investment opportunity are: (see attached image). Mary plans to operate the business for six years. Mary requires a minimum 6% return on this investment. What is the net present value of this investment?

Olivia sets up her home design company as a corporation. She expects to generate cash flows of $500,000 per year. She will fund the corporation with $4,500,000 and the corporation will be funded entirely with equity. Assume Olivia faces a tax rate of 30%. Using a discount rate of 8%, what is the NPV of the company? Responses -$125,000 -$125,000 $0 $0 $1,750,000 $1,750,000 -$1,750,000

Camila Juárez owns a successful law firm, her core business is corporate law, but occasionally Camila also works with mandates from wealthy clients requesting assistance in private legal matters. You are Camila's financial advisor, and she asks you to help her decide which of the private mandates she should accept. You estimate that Camila's opportunity cost of capital is 15% per effective annual and that she gives up $100,000 in monthly income from corporate work (assume this income is paid at the end of each month) if she accepts a private mandate. Camila is also interested in working for another private client B who is willing to pay her $140,000 per month, at the end of each month after receiving the mandate. This mandate would last 6 months, during which time Camila would receive monthly cash flows of $140,000. However, this job requires Camila to do some research for the next 2 months (starting today, before the mandate begins) to convince the client that she is the right person…