Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mike estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and start the bakery? Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business, should he start the bakery?arrow_forwardBill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8.6 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.2% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $5.2 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments?arrow_forwardK Bill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8.9 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.5% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $4.9 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments? ...arrow_forward
- You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary capital to pay you a lump sum. Instead, he has offered $600,000 today and annuity payments for the balance. The first payment will be for $280,000 in three months. The payments will increase at 1.3 percent per quarter and a total of 20 quarterly payments will be made. If you require an EAR of 8 percent, how much are you being offered for your company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of offerarrow_forwardFollowing the last question - John is evaluating the idea to open an ice cream shop on a piece of land. The followings are what he might include in the cash flows: Instead, John can earn $120,000 if he decides to sell the land today. He bought this land for $350,000 two years ago. • Outfitting the space for an ice cream shop would require a capital expenditure of $150,000 today. It'll require an investment of $30,000 in inventories for making the ice creams today. What are the opportunity costs of opening the ice cream shop? 1 · . -$120,000 O-$180,000 O-$350,000 O-$270,000 4arrow_forwardTiger Woods was paid a $10 million advance to write a book, which took him one year to write. Instead of writing, Woods could have earned $13 million playing golf during that year (paid at the end of the year, t=1). Assume that once his book is completed, it is expected to generate royalties of $5 million in the first year (paid at the end of the year, t=2) and these royalties are expected to decrease by 30% per year in perpetuity. Assuming that Woods' cost of capital is 10% and given these royalties payments, what is the net present value of Woods' book deal? Explain how you arrived at your answer. Select one: a. $9,545,455 O b. $8,512,397 O c. $33,181,818 O d. $21,363,636arrow_forward
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- Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that once her book is finished, it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease by 40% per year in perpetuity. Assuming that Palin's cost of capital is 10% and given these royalties payments, the NPV of Palin's book deal is closest to:arrow_forwardBill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write in the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, Kassume that he could eam $8.3 milion per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.3% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that once the book is finished, it is expected to generate royatios of $4 8 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty-payments? a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? The NPV of agreeing to write the book (ignoring any royalty payments) is $(Round to the nearest dollar)arrow_forward
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