Q1: As an avid fisherman, you have the option of purchasing a lifetime fishing license, which gives you fishing privileges in Minnesota for the rest of your life. You assume you will be fishing in Minnesota for at least the next 25 years. The one-time cost of a lifetime fishing license is $508 and the cost of an annual fishing license is $22 each year.
Note: You will purchase your 1st fishing license (annual or lifetime) immediately. What is the difference in net present value (NPV) between purchasing 25 annual fishing licenses or purchasing the lifetime fishing license if your alternative rate of return (ARR) is 5 percent?
Q2: Now, assumeYou assume you will be fishing in Minnesota for at least the next 40 years. The one-time cost of a lifetime fishing license is $508 and the cost of an annual fishing license is $22 each year.
What is the difference in net present value (NPV) between purchasing 40 annual fishing licenses or purchasing the lifetime fishing license if your alternative rate of return (ARR) is 5 percent?