The State of New Jersey fined Uber $100MM--about $335/driver involved (see related Media for this week) --for underreporting unemployment and other firm-side tax obligations to its drivers for the years 2014-2018. Of this, $78MM is to cover the payments, and $22MM is penalties and interest. Assume the obligation accrued equally over each of the five years (See attached spreadsheet, Cash Flows tab). Choose, as a proxy, either one of the risk-free seven-year interest rates available in 2014 (attached spreadsheet; Tab DGS7) or one of the risk-free ten-year interest rates available in 2014 (attached spreadsheet; Tab DGS10). ** Please show formulas with solutions.

1. Explain why you chose the rate you did [1] why you chose either DGS7 or DGS10 and then [2] why you chose the rate you did).
2. For the discount rate you choose, what would be the break-even value (to the nearest $1,000) for each of the years 2014-2018 that would make $78MM today equivalent to those cash flows
3. Assume that the agreed penalties and interest are of equal size ($11MM each). What value would X (those 2014-2018 payments) need to have to be equivalent to $89MM ($78MM in obligations, $11MM in interest)?
4. Assume Uber's Cost of Funds is the Risk-free Rate plus 175 basis points (1.75%). How much money did they save/lose by paying $100MM now instead of the the X values you derived in (C) above in 2014 through 2018?
5. Given your answer in D, was Uber rewarded economically for being a scofflaw during those years? Explain your "Yes" or "No" answer.

Cash Flow:

\fobservation_date DG S7 FRED Graph Observations 2014-01-02 2.41 Federal Reserve Economic Data 2014-01-03 2.42 Link: https://fred.stlouisfed.org 2014-01-06 2.38 Help: https://fredhelp.stlouisfed.org 2014-01-07 2.37 Economic Research Division 2014-01-08 2.44 Federal Reserve Bank of St. Louis 2014-01-09 2.41 2014-01-10 2.29 DGS7 Market Yield on U.S. Treasury Securities at 7-Year Constant Maturity, Quoted on an Investment Basis, Percent, Daily, Not Se 2014-01-13 2.25 2014-01-14 2.30 Frequency: Daily 2014-01-15 2.33 2014-01-16 2.30 AVERAGE 2.14 2014-01-17 2.27 MINIMUM 1.80 2014-01-21 2.29 MAXIMUM 2.44 2014-01-22 2.34 MODE 2.14 16 2014-01-23 2.24 Start of Year 2.41 2014-01-24 2.20 End of Year 1.97 18 2014-01-27 2.24 19 2014-01-28 2.22 2014-01-29 2.15 2014-01-30 2.19 2014-01-31 2.13 23 2014-02-03 2.07 2014-02-04 2.09 25 2014-02-05 2.14 26 2014-02-06 2.17 27 2014-02-07 2.13 2014-02-10 2.13observation_date DGS10 IN 2014-01-02 3.00 FRED Graph Observations 2014-01-03 3.01 Federal Reserve Economic Data 2014-01-06 2.98 Link: https://fred.stlouisfed.org 2014-01-07 2.96 Help: https://fredhelp.stlouisfed.org 2014-01-08 3.01 Economic Research Division 2014-01-09 2.97 Federal Reserve Bank of St. Louis 2014-01-10 2.88 2014-01-13 2.84 DGS10 Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Percent, Daily, Not S 2014-01-14 2.88 11 2014-01-15 2.90 Frequency: Daily 12 2014-01-16 2.86 13 2014-01-17 2.84 AVERAGE 2.54 14 2014-01-21 2.85 MINIMUM 2.07 15 2014-01-22 2.87 MAXIMUM 3.01 16 2014-01-23 2.79 MODE 2.73 17 2014-01-24 2.75 Start of Year 3.00 18 2014-01-27 2.78 End of Year 2.171 19 2014-01-28 2.77 20 2014-01-29 2.69 21 2014-01-30 2.72 22 2014-01-31 2.67 23 2014-02-03 2.61 24 2014-02-04 2.64 25 2014-02-05 2.70 26 2014-02-06 2.73 27 2014-02-07 2.71 78 2014-02-10 2.70197 2014-10-10 2.31 198 2014-10-14 2.21 199 2014-10-15 2.15 200 2014-10-16 2.17 201 2014-10-17 2.22 202 2014-10-20 2.20 203 2014-10-21 2.23 204 2014-10-22 2.25 205 2014-10-23 2.29 206 2014-10-24 2.29 207 2014-10-27 2.27 208 2014-10-28 2.30 209 2014-10-29 2.34 210 2014-10-30 2.32 211 2014-10-31 2.35 212 2014-11-03 2.36 213 2014-11-04 2.35 214 2014-11-05 2.36 215 2014-11-06 2.39 216 2014-11-07 2.32 217 2014-11-10 2.38 218 2014-11-12 2.37 219 2014-11-13 2.35 220 2014-11-14 2.32 221 2014-11-17 2.34 222 2014-11-18 2.32 223 2014-11-19 2.36 224 2014-11-20 2.34