E11-6 Comparing Options Using Present Value Concepts [LO 11-S1] After hearing a
ID: 2591193 • Letter: E
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E11-6 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 $30 million. You have three options. (a) Receive $1.5 million per year for the next 20 years. (b) Have $10.5 million today (c) Have $2.25 million today and receive $1,200,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments. Required 1. 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, not in millions.) Present Value Option A Option B Option C 2. Determine which option you prefer. Option C Option B Option AExplanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Option A Option B Option C Amount received today - 10,500,000.00 2,250,000.00 Amount received per year for 20 Years 1,500,000.00 1,200,000.00 PVF at 13% for 20 Years 7.0248 7.0248 7.0248 Present Value 10,537,127.37 - 8,429,701.89 Total Present Value = Received today +PV 10,537,127.37 10,500,000.00 10,679,701.89 Prefer Option C as it has highest present value Time PVF at 13% 1.00 0.8850 2.00 0.7831 3.00 0.6931 4.00 0.6133 5.00 0.5428 6.00 0.4803 7.00 0.4251 8.00 0.3762 9.00 0.3329 10.00 0.2946 11.00 0.2607 12.00 0.2307 13.00 0.2042 14.00 0.1807 15.00 0.1599 16.00 0.1415 17.00 0.1252 18.00 0.1108 19.00 0.0981 20.00 0.0868 7.0248
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