Restaurant Study

Published: 2021-09-11 14:15:11
essay essay

Category: Business

Type of paper: Essay

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1. In order to find Virginia's net worth we take the present value formula PV=FV/(1+i)^n to evaluate the present value of the $3,000,000 Virginia is receiving one year from now. That calculation equals 2,830,188.68. Then that calculation is added the current $ 2,000,000 cash she has to get a total of $ 4,830,188.68. Virginia can consume 2,000,000 today. If she consumes nothing today, and invests $2,000,000 at the interest rate of 6% she will be able to spend more compared to now. FV=PV x (1+i)^n. $2,000,000 * 1.06 = 2,120,000 plus $ 2,830,188.68 = 4,950,188.68.
2. Virginia should invest $ 3,000,000 in the restaurant. If she were to take her money to the market place, her payout at the end of the year would have only been $4,240,000. With the restaurant, she will make that money with the $3,000,000. She can invest the $ 1 million left elsewhere if she is not willing to invest the full amount. Virginia's wealth grows quicker wit the investment in the restaurant.
3. If Virginia consumes $3.8 million of the consumption at this point, she will only have $ 200,000 left over which will not be enough for her to invest in this restaurant.

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