Fix the mistake please Comparing Options Using Present Value Concepts [LO 11-S1]
ID: 2473231 • Letter: F
Question
Fix the mistake please
Comparing Options Using Present Value Concepts [LO 11-S1] After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $35 million. You have three options. Receive $1.75 million per year for the next 20 years. Have $11.75 million today. Have $3.5 million today and receive $1,450,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 12 percent on investments. Requirement: Calculate the present value of each option. (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars but not in millions.) Determine which option you prefer.Explanation / Answer
Dear student answer for part a is 13,071,526.
Option C is best as it has highest Present Value of 14,330,693.26 Statement showing Cash flows a) b) c) Particulars Time PVF@12% Amount PV Amount PV Amount PV Cash flows - 1.00 - 11,750,000.00 11,750,000.00 3,500,000.00 3,500,000.00 Cash flows 1.00 0.8929 1,750,000.00 1,562,500.00 - 1,450,000.00 1,294,642.86 Cash flows 2.00 0.7972 1,750,000.00 1,395,089.29 - 1,450,000.00 1,155,931.12 Cash flows 3.00 0.7118 1,750,000.00 1,245,615.43 - 1,450,000.00 1,032,081.36 Cash flows 4.00 0.6355 1,750,000.00 1,112,156.64 - 1,450,000.00 921,501.21 Cash flows 5.00 0.5674 1,750,000.00 992,997.00 - 1,450,000.00 822,768.94 Cash flows 6.00 0.5066 1,750,000.00 886,604.46 - 1,450,000.00 734,615.13 Cash flows 7.00 0.4523 1,750,000.00 791,611.13 - 1,450,000.00 655,906.36 Cash flows 8.00 0.4039 1,750,000.00 706,795.65 - 1,450,000.00 585,630.68 Cash flows 9.00 0.3606 1,750,000.00 631,067.54 - 1,450,000.00 522,884.54 Cash flows 10.00 0.3220 1,750,000.00 563,453.16 - 1,450,000.00 466,861.19 Cash flows 11.00 0.2875 1,750,000.00 503,083.18 - 1,450,000.00 416,840.35 Cash flows 12.00 0.2567 1,750,000.00 449,181.41 - 1,450,000.00 372,178.88 Cash flows 13.00 0.2292 1,750,000.00 401,054.83 - 1,450,000.00 332,302.58 Cash flows 14.00 0.2046 1,750,000.00 358,084.67 - 1,450,000.00 296,698.73 Cash flows 15.00 0.1827 1,750,000.00 319,718.46 - 1,450,000.00 264,909.58 Cash flows 16.00 0.1631 1,750,000.00 285,462.91 - 1,450,000.00 236,526.41 Cash flows 17.00 0.1456 1,750,000.00 254,877.60 - 1,450,000.00 211,184.29 Cash flows 18.00 0.1300 1,750,000.00 227,569.28 - 1,450,000.00 188,557.41 Cash flows 19.00 0.1161 1,750,000.00 203,186.86 - 1,450,000.00 168,354.83 Cash flows 20.00 0.1037 1,750,000.00 181,416.84 - 1,450,000.00 150,316.81 PV of Cash Flows 13,071,526.34 11,750,000.00 14,330,693.26Related Questions
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