Yasmin Jamieson is 18 years old and is about to graduate from an Ottawa high school. She must decide: which university will she attend in September? She wants to follow a 4-year undergraduate degree in Economics. Yasmin has been accepted to attend McMaster University in Ontario, Canada, and Stanford University, California, United States. She faces only one annual cost for the each of the four years she is in university: tuition. Annual tuition at McMaster is $15,000. At Stanford, annual tuition is $45,000. Assume that she is not considering the option of working after high school. Therefore, do not consider the foregone labour earnings when going to university. After graduation, Yasmin has a strong interest in Labour Economics and hopes to receive job offers from Capital Economics (near Hamilton, Canada) and from Insight Economics (near Stanford, USA).

She knows that these two companies offer different annual salaries depending on where one has graduated. Capital Economics will offer a McMaster graduate an annual salary of $128,000 and a Stanford graduate an annual salary of $160,000. Insight Economics will offer a McMaster graduate an annual salary of $175,000 and a Stanford graduate an annual salary of $250,000.

Let’s assume the following:

• Yasmin’s objective in her decision-making is to maximize the present value of net future income over her career (that is, income net of costs).

• She is certain to get job offers from both companies.

• Please ignore differences between these two cities in terms of income taxes, the exchange rate, the cost of living and moving costs.

• These annual salaries do not change for the duration of her expected career, from age 22 to 65. Hint: this time horizon is sufficiently long to use the present value (PV) approximation formula.

• However, the present value of annual tuition costs should be calculated using the expanded present value formula.

• The market interest rate is 5%. Which university would you recommend to Yasmin? Please show all your calculations and explain your recommendation. (20 points)

19-3 Balance Sheet Effects: Two companies, Tweedledee and Tweedledum, began operations with identical balance sheets. A year later, both required additional fixed assets at a cost of $75,000. Tweedledee obtained a 5-year, loan at 46% interest rate from its bank. Tweedledum, on the other hand, decided to lease the require $75,000 capacity for 5 years, and a 4% return was built into the lease. The balance sheet for each company, before the asset increases, follows:

Current assets   42,000                Debt                     75,000

Fixed assets        178,000               Equity                  145,000

Total assets        220,000               Total claims        220,000

a. Show the balance sheets for both firms after the asset increases, and calculate each firm's new debt ratio assuming that the lease is not capitalized.

b. Show how Tweedledum balance sheet would look immediately after the financing assuming the lease is capitalized. What would be its debt ratio?

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,600 2 2,100 3 2,200 4 1,800 5 1,600 6 1,700 1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.) 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) 3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $261,000 including installation. The company estimates that the equipment will have a residual value of $27,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows:

Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $50. However, once built, the machine will last for 20 years and will require no maintenance. The machine takes one year to build and it will cost $1,000 to build. Your buddy wants to know if he should invest the money to construct it. If the interest rate is 3% per year, what should your buddy do?

1. To make the decision you need to calculate the net present value (NPV) of the machine.

The NPV of the machine is $????. (round to the nearest dollar, if negativ use -)

2. You convince your friend to improve the machine so that the amount of produced money will increase every year by 2% over the 20 years.

The NPV of the new machine is $????. (round to the nearest dollar, if negativ use -)

3. What is the IRR of the machine in b.?

The IRR of the machine is ????%. (round to two decimals)

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $264,000 including installation. The company estimates that the equipment will have a residual value of $25,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows: Year Hours Used 1 2,900 2 1,300 3 1,400 4 2,600 5 2,400 6 1,900

1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.) 2 Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) 3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $258,000 including installation. The company estimates that the equipment will have a residual value of $28,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows:

1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.)

2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.)
3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $234,000 including installation. The company estimates that the equipment will have a residual value of $27,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows:

1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.)

2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.)

3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)