1. Holly would like to plan for her daughter's college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 10%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college?
$4,900.78.
$3,345.31.
$2,845.81.
$4,009.87.
2. You are considering a project that has been assigned a discount rate of 8 percent. If you start the project today, you will incur an initial cost of $500 and will receive cash inflows of $365 a year for three years. If you wait one year to start the project, the initial cost will rise to $570 and the cash flows will increase to $420 a year for three years. What is the value of the option to wait (i.e., the difference between the NPV of the project if started today and the NPV of the project if you decide to wait)? (show work)
$33.79
$27.50
$41.16
$25.08
$48.75