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yawa3891 [41]
3 years ago
12

Decision #1: Which set of Cash Flows is worth more now?Assume that your grandmother wants to give you generous gift. She wants y

ou to choose which one of the following sets of cash flows you would like to receive:Option A: Receive a one-time gift of $ 10,000 today. Option B: Receive a $1500 gift each year for the next 10 years. The first $1500 would be received 1 year from today. Option C: Receive a one-time gift of $18,000 10 years from today.
Business
1 answer:
7nadin3 [17]3 years ago
8 0

Answer:

Option A is the more convinient.

Explanation:

Giving the following information:

She wants you to choose which one of the following sets of cash flows you would like to receive:Option A: Receive a one-time gift of $ 10,000 today. Option B: Receive a $1500 gift each year for the next 10 years. The first $1500 would be received 1 year from today. Option C: Receive a one-time gift of $18,000 10 years from today.

We will assume a discount rate of 10%.

Option A:

Present value= $10,000

Option B:

Final value= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {1500*[(1.10^10)-1]/0.10= 23,906.14

PV= FV/(1+i)^n

PV= 23,906.14/1.10^10= $9,216.85

Option C:

PV= 18,000/1.10^10= $6,939.80

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