It is the beginning of September and you have been offered the following deal to go heli-skiing.

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It is the beginning of September and you have been offered the following deal to go heli-skiing. If you pick the first week in January and pay for your vacation now, you can get a week of heli-skiing for $2500. However, if you cannot ski because the helicopters cannot fly due to bad weather, there is no snow, or you get sick, you do not get a refund. There is a 40% probability that you will not be able to ski. If you wait until the last minute and go only if you know that the conditions are perfect and you are healthy, the vacation will cost $4000. You estimate that the pleasure you get from heli-skiing is worth $6000 per week to you (if you had to pay any more than that, you would choose not to go). If your cost of capital is 8% per year, should you book ahead or wait?


Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Corporate Finance

ISBN: 978-0133097894

3rd edition

Authors: Jonathan Berk and Peter DeMarzo

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