Answer:
He should choose Option B because it has the highest equivalent annual annuity,
Explanation:
To decide which option is better, calculate the equivalent annual annuity using the following formula
Equivalent Annual Annuity = Total Present value / Total Present value Factor
Option A
Where
Total Present value = $37,245,058
Total Present value Factor = 5.30781306
Placing values in the formula
Equivalent Annual Annuity = $37,245,058 / 5.30781306 = $7,017,025.18
Option B
Where
Total Present value = $46,675,950
Total Present value Factor = 4.144303839
Placing values in the formula
Equivalent Annual Annuity = $46,675,950 / 4.144303839 = $11,262,675.64
Option C
Where
Total Present value = $48,905,550
Total Present value Factor = 4.754748665
Placing values in the formula
Equivalent Annual Annuity = $48,905,550 / 4.754748665 = $10,285,622.48
