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This is a present value question. To answer it, it is necessary to find the present value of each of the four alternatives. The alternative to recommend is the one with the highest present value. This is not the alternative with the highest present value.
This is a present value question. To answer it, it is necessary to find the present value of each of the four alternatives. The alternative to recommend is the one with the highest present value. This is not the alternative with the highest present value.
This is a present value question. To answer it, it is necessary to find the present value of each of the four alternatives. The alternative to recommend is the one with the highest present value. Here are the present values of each of the four answer choices: The present value of $135,000 now is $135,000. The present value of $40,000 per year at the end of the next four years is found by using the PV of an annuity factor for 4 years at 8%. The factor is multiplied by the annual $40,000 amount to find the present value: $40,000 × 3.312 = $132,480. The present value of $5,000 now and $20,000 per year at the end of each of the next ten years is found by discounting the $20,000 per year using the PV of an annuity factor for 10 years at 8%, and adding that amount to the $5,000 to be received now (undiscounted): $5,000 + ($20,000 × 6.710) = $139,200. The present value of $5,000 now and $5,000 per year at the end of each of the next nine years plus a lump-sum payment of $200,000 at the end of the tenth year is found by discounting the $5,000 per year using the PV of an annuity factor for 9 years at 8%, then discounting the $200,000 to be received at the end of the tenth year using the PV of $1 factor for 10 years at 8%, and adding both of those to the $5,000 to be received now (undiscounted): $5,000 + ($5,000 × 6.247) + ($200,000 × .463) = $5,000 + $31,235 + $92,600 = $128,835. The highest present value is $139,200, for $5,000 now and $20,000 per year at the end of the next ten years.
This is a present value question. To answer it, it is necessary to find the present value of each of the four alternatives. The alternative to recommend is the one with the highest present value. This is not the alternative with the highest present value.