(20 pts) A friend has bad credit and cant borrow from a lender, they offer to give you payments of $1500 now and in a year as well as $1000 payments years 3 through 10 in exchange for you buying them a $9000 car in two years time when they graduate. If they do not graduate they agree to let you keep the payments already made. Based on performance, you estimate that they only have a 50% chance of graduating. Based on a minimum ROR of 10% evaluate whether you should take the offer based on NPV.

0 1 2 3 4 5 6 7 8 9 10 I = 1500 I=1500 C = 9000 I = 1000 I=1000 I=1000 I=1000 I=1000 I=1000 I=1000 I=1000

1. (20 pts) A friend has bad credit and can't borrow from a lender, they offer to give you payments of $1500 now and in a year as well as $1000 payments years 3 through 10 in exchange for you buying them a $9000 car in two years' time, when they graduate. If they do not graduate they agree to let you keep the payments already made. Based on performance, you estimate that they only have a 50% chance of graduating. Based on a minimum ROR of 10% evaluate whether you should take the offer based on NPV. 0 1 3 5 6 7 8 10 2 C = 9000 I= 1500 I=1500 I= 1000 I=1000 I=1000 I=1000 I=1000 I=1000 I=1000 I=1000