Ramos trucking won a settlement in a lawsuit and was offered four different paym
ID: 2359953 • Letter: R
Question
Ramos trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company. The interest rate is 9%. Ignoring the tax considerations, which of the following four alternatives has the highest present value (and thus is the best option)? support your answer with the appropriate calculations. 1. $180,000 now. 2. $52,000 per year for the next 4 years (end-of-year payments). 3. $5,000 now and then $24,000 per year for the next 10 years (end-of-year payments). hint: calculate the present value of the initial $5,000 separately. Then calculate the present value the $24,000 annuity separately. Finally, add the two present value amounts together to get the overall present value. 4. $9,100 per year for the next 10 years (end-of-year payments) plus a lump sum payment of $200,000 at the end of the 11th year. Hint: calculate the present value of the $9,100 10-year annuity separately. then calculate the present value the $200,000 payment received at the end of year 11 separately. Finally, add the two present value amounts together to get the overall present value. ..................I wasnt sure if i had solved the problem right, any help in solving this?Explanation / Answer
Choice 1: NPV = $180,000 Choice 2: NPV = $52000 x 3.4651 = $180185.2 Choice 3: NPV = 5000 + 24000 x 7.3601 = $181642.4 Choice 4 NPV = 9100 x 7.3601 + 200000 x 0.5268 = $172336.9 Thus, Choice 3 will be a better choice. Hope this helps!
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.