Question
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.
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.
Solutions
Expert Solution
| 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. | ||||||||
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