Question

Consider an 18-year old who is about to start a three-year course of study. The total...

Consider an 18-year old who is about to start a three-year course of study. The total cost of the course is $18,000, payable in advance. The returns take the form of annual $5,000 earnings premiums (paid at year-end) that the individual receives from age 21 through to age 25. Calculate the net present value of this investment assuming the discount rate of 5%. Should the project go ahead? Please, explain all the calculations! :)  

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

NPV = Present value of the earnings premium - The total cost of the course

First earnings premium is when the individual is 21 and the last premium is when the individual is 25. There are 25 - 21 + 1 = 5 earnings premium.

The first earnings premium (when 21) is 3 years away, the second premium (when 22) is 4 years away and so on..

The last earnings premium (when 25) is 7 years away.

NPV = 5000/(1 + 0.05)^3 + 5000/(1 + 0.05)^4 + 5000/(1 + 0.05)^5 + 5000/(1 + 0.05)^6 + 5000/(1 + 0.05)^7 - 18,000

NPV = 4,319.1879926574 + 4,113.5123739594 + 3,917.6308323423 + 3,731.0769831831 + 3,553.4066506506 - 18,000

NPV = $1,634.81483279

Yes, the project should be taken because it has a positive NPV.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider an 18-year old who is about to start a three-year course of study. The total...
Consider an 18-year old who is about to start a three-year course of study. The total cost of the course is $18,000, payable in advance. The returns take the form of annual $5,000 earnings premiums (paid at year-end) that the individual receives from age 21 through to age 25. Calculate the net present value of this investment assuming the discount rate of 5%. Should the project go ahead?
General John Jones is married with two children. His family consists of his wife Jen Jones...
General John Jones is married with two children. His family consists of his wife Jen Jones and his children James Jones and Jackie Jones. This case study is mainly surrounding John’s earnings, but Jen also works and receives a salary of $80,000 which SHOULD be included in the overall taxable income calculation and included on Form 1040 James Jones is 12 years old and lives at home. His parents fully provide for him Jackie Jones is 23 years old full-time...
Your patient is a married 47 year old white female homemaker with 2 children and an 18 year history of systemic lupus erythematosus (SLE).
Your patient is a married 47 year old white female homemaker with 2 children and an 18 year history of systemic lupus erythematosus (SLE). She has no known allergies. The pt takes an occasional naproxen for joint pain and antacid for heartburn but no other prescription or OTC (over the counter) medication. She neither smokes nor drinks alcohol (ETOH). Except for lupus, the patient's medical history is unremarkable. She is 5 feet 5 inches in height and weighs 102 pounds...
SHOW CALCULATION AND EXPLANATION, PLEASE! 1- For a given amount, the lower the discount rate, the...
SHOW CALCULATION AND EXPLANATION, PLEASE! 1- For a given amount, the lower the discount rate, the less the present value. A) True B) False 2- What is the NPV of a project that costs $100,000 and returns $45,000 annually for three years if the cost of capital is 14%? A) $3,397.57 B) $4,473.44 C) $16,100.00 D) $35,000.00 3- The decision rule for net present value is to: A) Accept all projects with cash inflows exceeding initial cost. B) Reject all...
Case Study:     Gall bladder John Smith is a 65-year-old retiree who is admitted to your unit...
Case Study:     Gall bladder John Smith is a 65-year-old retiree who is admitted to your unit from the emergency department (Ed). On arrival, you note that he is trembling and nearly doubled over with severe abdominal pain. John indicates that he has severe pain in the right upper quadrant (RUQ) of his abdomen that radiates through to his mid back as a deep, sharp, boring pain. He is more comfortable walking or sitting bent forward rather than lying flat in...
Post-Closing Trial Balance December 31, 2018 Debit Credit Cash      18,200 Accounts receivable        3,960 Supplies        1,380
Post-Closing Trial Balance December 31, 2018 Debit Credit Cash      18,200 Accounts receivable        3,960 Supplies        1,380 Prepaid insurance           750 Prepaid rent        3,800 Furniture        5,000 Accumulated depreciation, furniture           450 Equipment        8,000 Accumulated depreciation, equipment        4,000 Accounts payable        2,700 Accrued liabilities           190 Unearned service revenue        1,900 Common shares      20,000 Retained earnings      11,850 Total      41,090      41,090 PREPARE JOURNAL ENTRIES (+ADJUSTING ONES IF NEEDED) Business Activities for January, 2019 On January 4, 2019, Linda paid the outstanding accounts payable balance from December 31, 2018. On...
3.When closing entries are made:Immersive Reader (1 Point) All ledger accounts are closed to start the...
3.When closing entries are made:Immersive Reader (1 Point) All ledger accounts are closed to start the new accounting period. All real accounts are closed but not the nominal accounts. All balance sheet accounts are closed. All temporary accounts are closed but not the permanent accounts. All permanent accounts are closed but not the nominal accounts. 4.A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.Immersive Reader (1 Point) True False 5.The Merchandise...
Which of the following best describes a project management plan? The project charter, WBS, and project...
Which of the following best describes a project management plan? The project charter, WBS, and project scope statement The schedule, management plans, and budget A formal, approved document used to control the project The project manager's plan for managing and controlling the work The engineering department wants the project objective to be a 10 percent improvement in throughput. The information technology department wants no more than 5 percent of its resources to be used on the project. Management, who is...
READ THE CASE STUDY AND ANSWER THE FOLLOWING QUESTIONS 2nd CASE: An Unexplained Death A 65-year-old...
READ THE CASE STUDY AND ANSWER THE FOLLOWING QUESTIONS 2nd CASE: An Unexplained Death A 65-year-old man of Scandinavian descent was rushed to the Emergency Room of your local hospital after a family member discovered him unconscious in his home. The woman who dialed “911” told the dispatcher that the man, her brother, was the local librarian of the past 10 years and had no spouse or children. She reported that they had spoken the day before, and he had...
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe,...
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm. During 2016, the Deans had the following receipts: Salaries ($60,000 for Lance, $41,000 for Wanda) $101,000 Interest income—    City of Albuquerque general purpose bonds $1,000    Ford Motor company bonds 1,100    Ally Bank certificate of deposit 400 2,500 Child...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT