A video of you goes viral. You managed to outrun both the news and police helicopters in your Dodge Hellcat .But then got busted because you run out of gas. (Real video) While you get to spend some time in prison, it just gives you a chance to manage your new business. You have two opportunities but can only do one because you only have 1 hour of free time a day. The first opportunity is that you can start a company that modifies Dodge Hellcats so they can hold more gas. You estimate it will cost you $500,000 to start this company today. You think you'll make $200,000 per year for 4 years starting a year from today at which point they'll take the cars off the road. The other opportunity is to become a professional race car driver. You estimate this will cost you $800,000 today setting up your team. You think you'd make $150,000 per year for the next 15 years starting a year from today and then retire.

If your discount rate is 8%, which opportunity should you take?

Answer rating: 100% (QA)

SOLUTION To determine which opportunity to take we need to calculate the net present value NPV of ea... View the full answer