Your grandfather has offered you a choice of one of the three following alternat
ID: 2652325 • Letter: Y
Question
Your grandfather has offered you a choice of one of the three following alternatives: $9,000 now; $3,800 a year for six years; or $46,000 at the end of six years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Assuming you could earn 10 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
If you could earn 11 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Your grandfather has offered you a choice of one of the three following alternatives: $9,000 now; $3,800 a year for six years; or $46,000 at the end of six years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Explanation / Answer
Answer:-
a-1.
(1st Alternative)
Present value of $9000 received now:$9000
(2nd Alternative)
= 3800 * PVIFA at (r,n)
= 3800 * PVIFA at (10%, 6 year)
= 3800 * 4.355
= $16549
(3rd Alternative)
= 46000 * PVIF at (r,n)
= 46000 * PVIF at (10%, 6 year)
= 46000 * .565
= $25990
a-2.
3rd Alternative is the Best Answer because its Present Value is higher than the others.
b-1.
(1st Alternative)
Present value of $9000 received now:$9000
(2nd Alternative)
= 3800 * PVIFA at (r,n)
= 3800 * PVIFA at (11%, 6 year)
= 3800 * 4.231
= $16077.8
(3rd Alternative)
= 46000 * PVIF at (r,n)
= 46000 * PVIF at (10%, 6 year)
= 46000 * .535
= $24610
a-2.
3rd Alternative is the Best Answer because its Present Value is higher than the others.
Present Value $9000(1st Alternative)
Present value of $9000 received now:$9000
$3800(2nd Alternative)
= 3800 * PVIFA at (r,n)
= 3800 * PVIFA at (10%, 6 year)
= 3800 * 4.355
= $16549
$46000(3rd Alternative)
= 46000 * PVIF at (r,n)
= 46000 * PVIF at (10%, 6 year)
= 46000 * .565
= $25990
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