Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 22, Problem 7P
Summary Introduction

To determine: Whether vacation should be taken today or should wait.

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It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $1,500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 45% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are well, the vacation will cost you $4,800. You estimate that the pleasure you get from heli-skiing is worth $7,100 per week to you (if you had to pay more than that, you would choose not to go). If your cost of capital is 13% per year, should you book ahead or wait? You should because the NPV of this choice is $ (Round to two decimal places.)
A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you $25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is 6 percent?
Assume that in October you bought a $450 nonrefundable airline ticket to Telluride,Colorado, for a 5-day/4-night winter ski vacation. You now have an opportunity tobuy an airline ticket for a 5-day/4-night winter ski vacation in Stowe, Vermont, for$400 that includes a free ski lift ticket. The price of your lift ticket for the Telluridevacation would be $300. The price of a hotel room in Telluride is $180 per night. Theprice of a hotel room in Stowe is $150 per night. Which of the following costs is notrelevant in a decision of whether to proceed with the planned trip to Telluride or tochange to a trip to Stowe?a. The $450 airline ticket to Telluride.b. The $400 airline ticket to Stowe.c. The $300 lift ticket for the Telluride vacation.d. The $180 per night hotel room in Telluride.

Chapter 22 Solutions

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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