In: Finance
You are offered $110,000 today or $320,000 in 10 years. assuming that you can earn 12 percent on your money, which should you choose. Provide all calculations.
Cash flow option which has higher present value should be accepted. | ||||||||
Present value of cash flow in 10 years | = | F | * | (1+i)^-n | Where, | |||
= | $ 3,20,000 | * | (1+0.12)^-10 | F | = | $ 3,20,000 | ||
= | $ 3,20,000 | * | 0.321973 | i | = | 12% | ||
= | $ 1,03,031.44 | n | = | 10 | ||||
Option to receive cash flow today has higher present value. | ||||||||
So, option to receive $ 110,000 today should be accepted. |