Your grandfather has offered you a choice of one of the three following alternatives: $10,500 now...

Question

Question

Your grandfather has offered you a choice of one of the three following alternatives: $10,500 now $5,000 a year for nine year

b-1. If you could earn 8 percent annually, compute the present value of each alternative: (Do not round intermediate calculat

business accounting

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

a)

1.

alternatives	present value
10500	10500
5000	32576.11
61000	33179.96

formula

present value=cash flow/(1+r)ⁿ

n is the number of periods

r is the rate of return =7%

case 1-10500

10500 now

therfore n=0

cash flow=10500

r=7%

pv=10500/(1+0.07)⁰=10500

case 2-5000 a year for nine years

cashflow=5000

n=1 to 9

r=7%

pv=(5000/(1+0.07)¹) + (5000/(1+0.07)²) + (5000/(1+0.07)³) + (5000/(1+0.07)⁴) + (5000/(1+0.07)⁵) + (5000/(1+0.07)⁶) + (5000/(1+0.07)⁷) + (5000/(1+0.07)⁸) + (5000/(1+0.07)⁹)

pv=4672.89+4367.19+4081.48+3814.47+3564.93+3331.71+3113.74+2910.04+2719.66 =32576.11

case 3- 61000 at the end of nine years

n=9

r=7%

cashflow=61000

pv=61000/(1+0.07)⁹=33179.96

2. 61000 at the end of nine years

the alternate with highest present value should be chosen. among these alternates case 3 has the highest present value and it should be taken.

b)

alternate	present value
10500	10500
5000	31234.40
61000	30515.18

formula

present value=cash flow/(1+r)ⁿ

n is the number of periods

r is the rate of return =8%

case 1-10500

10500 now

therfore n=0

cash flow=10500

r=8%

pv=10500/(1+0.08)⁰=10500

case 2-5000 a year for nine years

cashflow=5000

n=1 to 9

r=8%

pv=(5000/(1+0.08)¹) + (5000/(1+0.08)²) + (5000/(1+0.08)³) + (5000/(1+0.08)⁴) + (5000/(1+0.08)⁵) + (5000/(1+0.08)⁶) + (5000/(1+0.08)⁷) + (5000/(1+0.08)⁸) + (5000/(1+0.08)⁹)

pv=4629.63+4286.69+3969.16+3675.14+3402.91+3150.84+2917.45+2701.34+2501.24 =31234.40

case 3- 61000 at the end of nine years

n=9

r=8%

cashflow=61000

pv=61000/(1+0.08)⁹=30515.18

Add a comment

Answer 2

Similar Homework Help Questions

Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now:...

Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now: $2.200 a year for nine years; or $31,000 at the formula and financial calculator methods. e years. Use Appendix 8 and Appendix D for an approximate answer, but calculate your final answer using a-1. Assuming you coul calculations. Round your final answers to 2 decimal places.) d earn 10 percent annually, compute the present value of each alternative: (Do not round intermediate Present Value...
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 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...
Your grandfather has offered you a choice of one of the three following alternatives:

Your grandfather has offered you a choice of one of the three following alternatives: $5,500 now; $1,250 a year for five years; or $17,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer uYour grandfather has offered you a choice of one of the three following alternatives: $5,500 now; $1,250 a year for five years; or $17,000 at the end of five years. Use Appendix B and Appendix D for an approximate...

Your grandfather has offered you a choice of one of the three following alternatives: $5,500 now; $1,250 a year for five years; or $17,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer u

Your grandfather has offered you a choice of one of the three following alternatives: $5,500 now; $1,250 a year for five years; or $17,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.a-1. Assuming you could earn 6 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.)1250 -> Present value = _________ a-2. If you...
1. (15 points) Your grandfather has offered you a choice of one of the theefollowing alternatives:...

1. (15 points) Your grandfather has offered you a choice of one of the theefollowing alternatives: $4500 now; $1000 at the beginning of each period for six years, or $8000 at the end of six years. Assuming you could earn 12% annually. Required: (1) Calculate the Present Value of each choice (2) State which alternative should you choose?
You need $24,156 at the end of 7 years, and your only investment outlet is an...

You need $24,156 at the end of 7 years, and your only investment outlet is an 9 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. What single payment could be made at the beginning of the first year to achieve this...

You need $25,656 at the end of 7 years, and your only investment autlet is an...

You need $25,656 at the end of 7 years, and your only investment autlet is an 12 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning ar the first year, se Appendix B and Appendix С for an approximate answer, but calculate your final answer using the formula and financal calculator methods. a. What single payment could be made at the beginning of the first year to achieve this...
You need $25,856 at the end of 9 years, and your only investment outlet is an...

You need $25,856 at the end of 9 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. What single payment could be made at the beginning of the first year to achieve this...
You need $25,256 at the end of 8 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year.

You need $25,256 at the end of 8 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. What single payment could be made at the beginning of the first year to achieve this objective? (Do not round intermediate calculations. Round...

Your father offers you a choice of $110,000 in 12 years or $47,500 today. Use Appendix...

Your father offers you a choice of $110,000 in 12 years or $47,500 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. If money is discounted at 10 percent, what is the present value of the $110,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) a-2. Which offer should you choose? $110,000 in 12 years $47,500 today b-1. Now assume the...

Your grandfather has offered you a choice of one of the three following alternatives: $10,500 now...

Homework Answers

Add Answer to:
Your grandfather has offered you a choice of one of the three following alternatives: $10,500 now...

Post as a guest

Earn Coins

Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now:...

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