Eichelberger Trucking won a settlement in a lawsuit and was offered four differe

Question

Eichelberger Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company. the interest rate is 8%. Ignoring the eax considerations. which of the following four alternatives has the highest present value?

1) $180,000 now

2) $55,000 per year for the next 4 years (end-of-year payments)

3) $5,000 now and then $26,000 per year for the next 10years (end of year payments). Hint: calculate the present value of the initial P00 separately. Then calculate the present value the $26,000 annuity separately. Finally, add the two present value amounts together to get the overall present value.

4) $11,100 per yaer for the next 10 years (end of year payments) plus a lump sum payment of $230,000 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 separetely. Finally, add the two present value amounts together to get the overall present value.

Explanation / Answer

We get highest value from (2) $55000 per year for the next 4 years.

The PV of the 4 alternatives are:

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