1- Clara, your cousin, is the storyteller in the family and she has the talent of making even the most ordinary events interesting. She always wanted to be an author but never had the chance to do that until now. She started posting a couple of her short stories on Wattpad, an online book site for unpublished writers. Her stories are followed by a lot of readers on Wattpad and this attracted the attention of a major book publisher. The publisher wants to sign a book writing contract with her, a once-in-a-lifetime opportunity. Since you are taking a finance course this semester, she asks for your help on financial matters. She thinks she needs to have a year to do the research for her book, write it and have it published. During the next 3 years, she plans to stay at her parents house to save money. She also thinks that her parents will give 6,000TL per year to cover some of her expenses. There will be three of these payments and the first one will be today. She also has 25,000TL in a bank account today. During the first year, she needs to have quarterly online meetings with her publisher and sources due to Covic-19 Pandemic. She has to have fast internet connection and membership to an online communication platform to facilitate these meetings. She needs to pay 500TL at the beginning of every month in the first 12 months for these services. She also forecasts her living expenses to be 24,000TL per year for these three years. All of these expenses will be paid for at the end of the year. To support herself for these three years, she plans to borrow money from her bank. The appropriate interest rate is 11.387% per year compounded monthly.

1. a. Draw the time line and show all the cash flows on the time line.
3. b. Calculate the amount of money your cousin needs to borrow from the bank today.

c. Suppose the bank is going to charge an interest rate of 11.387% per year compounded monthly on an amortizing loan. The bank will let her not make any payments in the first three years while she is trying to establish herself as a writer. However, during this time period, the bank will continue to charge interest on the borrowed amount. She has to pay the borrowed amount and the accumulated interest over the next three years back with five equal annual payments. The first payment will be made exactly four years from today. Calculate the annual payments your cousin needs to make to pay this loan back to the bank.

d. The price of her books will be 20TL per book and your cousin will get 5% of book revenues as royalty payments. She will spend one year to write her first book and sell it in the second year. In that year, Clara expects to sell 4,000 books in the first 6 months of the year and 18,000 books in the second 6 months of the year. Royalty payments for these semiannual sales will be made to her at the end of every 6 month period. Starting from the following year (in the 3^rd year from today), her book sales will stabilize at 75,000 books per year and stays at that level until she quits writing any more books. From there on, royalty payments will be given to her at the end of every year. Determine whether your cousin will get enough money from her book sales by the end of year 3 to pay the loan back to the bank if the interest rate is 11.387% per year compounded monthly.

e. Currently Clara works for a company and earns an income of 54,000TL per year. Suppose she can continue to work for this company for another 33 years and earn the same amount at the end of every year for the next 33 years. Her other option is to sign the book writing contract with the publisher today, quit her job, borrow the money you calculated in part (b) of this question from the bank and start writing her books during the same 33 years. In the first year from today, she will write her book. In the second year from today, she will have seminannual sales of 4,000 and 18,000 books. Starting from the third year from today, her book sales will stabilize at 75,000 books per year and stays at that level until the end of year 33. Starting from 3 years from today, she has to pay the loan back to the bank with five annual payments you calculated in part (c) of this question. Her books will sell for 20TL, and your cousin will get 5% of periodic book revenues as royalty payments. Royalty payments will be given to her at the end of the period. Help your cousin decide whether she should continue to work for the same company or start writing her books if the appropriate discount rate is 11.387% compounded monthly throughout the next 33 years.