1. Are there benefits to costs? Marc's Ferrari Driving Company has unexpectedly been profitable and is considering expanding into a new business for next year. Under consideration is MCSC (Marc's Catamaran Sailing Company), MHFC (Marc's Helicopter Flying Company), and MZDC (Marc's Zamboni Driving Company), we have an excellent credit rating and can borrow funds at an average cost of 5.55% per year. We want to earn a return of 11.11% per year on our projects. MFDC currently has annual profits of $141,1 1 1 .11, and the present worth of the expenses for this business are $765,432.10. Starting MCSC would require an initial upfront expense of $501,401.03. Ongoing expenses related to MCSC are estimated to be $36,500.50 per year, and we anticipate that this new business unit would generate profits of $180,200.20 annually over the 65 year life of the ship (the salvage value of the ship would not be much, only $12,600.55). Because some customers of MFDC would be attracted to this new alternative, MFDC would experience reduced profits of $38,800.00 per year if we launch this new business. MHFC is more complicated, purchasing a helicopter would require an upfront expense of $2,900,000.00, and we anticipate recovering 10% of that initial purchase price as a salvage value at the end of its 40 year life. Because this is a more complicated business, we expect the profits to grow by 15.5% each year, and we're forecasting $67,890.10 in profits for the first year of operation. It's such a different business, that we don't anticipate any negative impacts to MFDC or the local community MZDC is an entirely different business. The initial expense of $211,127.95 will enable the purchase of both a traditional and an electric vehicle. Both vehicles should have lives of 20 years, but, they'll be worthless at the end of their useful lives. Additional ongoing expenses are estimated at $4,719.89 per month for insurance, fuel, and maintenance Additional staff and advertising expenses will be about $66,818.10 per year. The expectation is that MZDC would generate $201,201.20 of new annual profits. MFDC shouldn't be impacted by this new business, but, the local community is upset about all of the ice. They're lobbying to have laws passed requiring MZDC to cover the impacts of any ice-related damages. This could be as much as $4,444.55 per year Conduct a Benefit/Cost (B/C) bracket' analysis to identify the optimal decision. 2. Buy or Rent You are contemplating the purchase of a $225,000 house. You intend to make a 10% down payment, and will borrow the balance at an annual rate (with monthly compounding) o, 43,5%. You wu use a 15 year mortgage tp pay off the loan balance as tast as can. You are also considering renting at a cost of $1,100.00 per month, and investing the difference between the rent you payment and mortgage payment in the stock market. stock market You expect that you could earn an average return of 822% per year in the Question 1 How much money will you borrow if you decide to purchase the home? Question 2 What would your monthly mortgage payment be if you purchase the home? Question 3 years, if you purchase the home? what would your outstanding mortgage balance be halfway through your loan (after 7 Question 4 What would your outstanding mortgage balance be after 15 years of mortgage payments if you purchase the home? Question 5 What would your 'net worth be at the end of 15 years under each scenario (rent vs. purchase)? Assume that the value of the house does not change. Question 6 How would your net worth at the end of fifteen years change if the value of the home increases an average of 234% per year? Question 7 What would your net worth be after 30 years under each scenario? (Assume that if you are no longer making mortgage payments, you could invest that entire amount in the stock market and earn the 822% return) N-PV YVM N/PP 2