Joey is one of several winners who shared a lottery ticket. There are three plans offered to receive the after-taxproceeds.Plan 1: $100,000 nowPlan 2: $15,000 per year for 8 years beginning 1 year from now. Total is$120,000.Plan 3: $45,000 now, another $45,000 four years from now, and a final$45,000 eight years from now. Total is $135,000.Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects tomake a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determinewhich plan provides the best deal.

Time value of money: It is a concept in which the present value of money is considered to be best as…

Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects to make a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determine which plan provides the best deal.

Joey, a quite conservative person financially, plans to invest all of the proceeds as he receives them. He expects to make a real return of 6% per year. Use the 8-year time frame and an average inflation of 4% per year to determine which plan provides the best deal.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Find the present worth of earthmoving equipment that has a first cost today of $141,000, an annual operating cost of $55,000, and a salvage value of 20% of the first cost after 5 years, these estimates being in future dollars. Assume that the real interest rate is 8% per year and that inflation has averaged 5.5% per year. Solve with inflation (a) not accounted for and (b) accounted for. a) The present worth with inflation not accounted for is $ b) The present worth with inflation accounted for is $
a-ß, Inc., a high-tech in San Diego, whose stock trades on the NYSE exchange uses a MARR of 27.800% per year. If the chief financial officer (CFO) said the company expects to make a real rate of return of 20% per year on its investments over the next 3-year period, what is the company expecting the annual inflation rate to be over that time period? (Round the final answer to three decimal places.) The company is expecting an annual inflation rate of %.
The cost of constructing a roundabout (R/A) in a low-traffic residential neighborhood 5 years ago was $625,000. A civil engineer designing another R/A that is almost the same design estimates the cost today will be $740,000. If the cost had increased only by the inflation rate over the 5 years, determine the inflation rate per year.
Using 1913 as the base year with a value of 100,the ENR construction cost index (CCI) for October2005 was 7562.50. For October 2006, the CCIvalue was 7882.53. (a) What was the inflation ratefor construction for that one-year period? (b) Theindex value for January 2007 was 7879.58. Whatwas the inflation rate over the period October2006 and January 2007?
An offshore services company is considering the purchase of equipment that has a cost today of $96,000. Inflation is a concern. The manufacturer plans to raise the price exactly in accordance with the inflation rate that may be somewhere between 1% and 8% per year. Develop a graph of how much the equipment will cost 3 years from now in terms of both (a) CV, and (b) future dollars.
A renewable energy industry is one of the promising sectors in future and play a major role in the vision 2030. If a specialized company in energy planning to upgrade their equipment now to meet future demand at cost of $200,000 or they purchase the upgrade package three years from now at cost of $300,000. Assume that the minimum attractive rate of return is 12% per year and the inflation is 3% per year. If the company decided to purchase the upgrade 3 years from now considering inflation what will be the cost?
If the market rate today on foreign stock investments is 12% per year and the inflation rate is 5% per year, the number of future dollars seven years in the future that will have the same purchasing power as $2000 now is closest to: O $905 O $1421 O $2810 O $4420
Find the present worth of earthmoving equipment that has a first cost today of $145,000, an annual operating cost of $60,000, and a salvage value of 20% of the first cost after 5 years, these estimates being in future dollars. Assume that the real interest rate is 12% per year and that inflation has averaged 7% per year. Solve with inflation (a) not accounted for and (b) accounted for. a) The present worth with inflation not accounted for is $ b) The present worth with inflation accounted for is $
Your manager has decided to invest $4350 dollars at an annual interest rate of 8.0% to buy raw material that it is needed one of the main manufacturing processes of your company. The current price of the raw material is $4.0 per kilogram. If the annual inflation is 5.0%, how many kilograms of raw material will your manager be able to purchase in 8 years? $ What would be the actual dollars amount that will be paid in 8 years for that raw material? 2$
Better Corporation can purchase a piece of equipment now for $120,000 or buy it 4 years from now for $188,000. The MARR requirement for the plant is a real return of 14% per year. If an inflation rate of 6% per year must be accounted for, what is the Future Value with inflation? a) $188,000 b) $255,873 c) $ 88,169 d) $120,000 Should the company buy the machine now or later? a) Now b) Later
Find the annual worth equivalent in actual-dollars from year 1 to 8 of an investment of $28,000 now, if the inflation rate is 5.5% and the inflation-free interest rate is 15% per year.
A renewable energy industry is one of the promising sectors in future and play a major role in the vision 2030. If a specialized company in energy planning to upgrade their equipment now to meet future demand at cost of $200,000 or they purchase the upgrade package three years from now at cost of $300,000. Assume that the minimum attractive rate of return is 12% per year and the inflation is 3% per year. Should the company purchase the upgrade now or later without considering inflation? Both are the same None of the answers Should purchase later Should purchase now