4. Stellar Insurance Agency, owned by Amy Cotton, has worked hard to establish itself in Lawrenceburg. After years of hard work, Amy is trying to decide whether to bring on another agent. She estimates the new agent will produce $110,000 of agency revenue in the first year and she expects that to grow 20% for each year the agent stays with her. She believes she will need to pay a new agent $50,000 base and 20% commission on the revenue he generates in the first year. Although she plans for the base compensation to stay constant, she believes the commissions will grow to 30% after the first year. She has also come to believe that she should plan for the agent to stay five years before the agent starts a new business. In looking at all the costs of hiring the new agent, including licensing and computer equipment, she believes she will spend $12,500 before the new agent actually starts working. Given her hurdle rate of 18%, the net present value of hiring the new agent will be.

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