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9 Problems Your grandfather has offered you a choice of one of the three following alternatives....


9 Problems Your grandfather has offered you a choice of one of the three following alternatives. $13,500 now $6,500 a year fo
9 Problems Your grandfather has offered you a choice of one of the three following alternatives. $13,500 now $6,500 a year for nine years, or 591.000 at the end of nine years. Use Appendix Band Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods -1. Assuming you could earn 9 percent annually, compute the present value of each alternative (Do not round Intermediate calculations. Round your final answers to 2 decimal places.) Preset Value 1350000 $ 13500 $ 91 000 o 1o 19 .-2. Which alternative should you choose? • $91,000 received at end of nine years O $6,500 received each year for nine years O $13,500 received now b-l if you could earn 10 percent annually compute the present value of each alternative: (Do not round Intermediate calculations Round your final answers to 2 decimal places) Present Vale 0 13. 0 5 of 10
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Ans a_ 1) Present value = 13,500.00
Ans a_ 2) Computation of present value
year Cash flow PVIF @ 9% present value
1 6500 0.9174312     5,963.30
2 6500 0.84168     5,470.92
3 6500 0.7721835     5,019.19
4 6500 0.7084252     4,604.76
5 6500 0.6499314     4,224.55
6 6500 0.5962673     3,875.74
7 6500 0.5470342     3,555.72
8 6500 0.5018663     3,262.13
9 6500 0.4604278     2,992.78
38,969.10
PV = 38,969.10
Ans 1_ 3) present value = 91000/(1.09)^9
41898.93
Ans a) 2 $91000 received at the end of nine year
Ans b_ 1) Present value = 13,500.00
Ans b_ 2) Computation of present value
year Cash flow PVIF @ 10% present value
1 6500 0.9090909     5,909.09
2 6500 0.8264463     5,371.90
3 6500 0.7513148     4,883.55
4 6500 0.6830135     4,439.59
5 6500 0.6209213     4,035.99
6 6500 0.5644739     3,669.08
7 6500 0.5131581     3,335.53
8 6500 0.4665074     3,032.30
9 6500 0.4240976     2,756.63
37,433.65
PV = 37,433.65
Ans b_ 3) present value = 91000/(1.1)^9
38592.88
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