Question

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

Answer 1

rate positively ..

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