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.

Related Solutions

Starting with $12,000, how much will you have in 12 years if you can earn 12 percent on your money?
Starting with $12,000, how much will you have in 12 years if you can earn 12 percent on your money? Round the answer to the nearest cent. Round FV-factor to three decimal places.Calculate your answer based on the FV-factor.$ ______Calculate your answer based on the financial calculator.$ ______If you can earn only 8 percent? Round the answer to the nearest cent. Round FV-factor to three decimal places.Calculate your answer based on the FV-factor.$ _____Calculate your answer based on the financial...
You invest $35,000 today and $3800 per year for 30 years. Assuming you earn an 8.4%...
You invest $35,000 today and $3800 per year for 30 years. Assuming you earn an 8.4% rate of return, how much will you have at the end of the 30th year? How much more do you have after 40 years? Of that additional money, how much came from your contributions and how much from investment income? Show work hand written
You invest $35,000 today and $3800 per year for 30 years. Assuming you earn an 8.4%...
You invest $35,000 today and $3800 per year for 30 years. Assuming you earn an 8.4% rate of return, how much will you have at the end of the 30th year? How much more do you have after 40 years? Of that additional money, how much came from your contributions and how much from investment income?
If you can earn 7.5 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?
You want to have $50,000 for a down payment on a house 5 years from now. If you can earn 7.5 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?Group of answer choices$35,133.35$34,827.93$34,677.70$33,989.16$32,886.33
The current interest rate is 12%. Which job should you choose to maximize your earnings?
You must select between two alternative summer jobs:Job A will pay you $2000 at the beginning of June, but you have to work for eight weeks.Job B will pay you $400 at the beginning of June and $205 each week for the next eight weeks. In all other respects, the jobs are comparable – either one will do.The current interest rate is 12%. Which job should you choose to maximize your earnings?A) Job A B) Job BThe answer was marked...
You need $500,000 in 11 years. Assuming you earn 9% on your investments, how much must...
You need $500,000 in 11 years. Assuming you earn 9% on your investments, how much must you invest each year? Show calculations.
Today, you earn a salary of $75,500. What was your annual salary be five years ago...
Today, you earn a salary of $75,500. What was your annual salary be five years ago if you receive annual raises of 3.6%? Select one: a. $62,230 b. $62,844 c. $58,213 d. $63,263 e. $63,441
Your brother has offered to give you either $12,000 today or $20,000 in 13 years. If...
Your brother has offered to give you either $12,000 today or $20,000 in 13 years. If the interest rate is 9% per year, which option is preferable? A. Take the future amount because its present value is greated than the present amount offered B. Take the present amount offered because it is greater than the present value of the future amount C. Take the present amount offered because it is less than the future amount D. Take the future amount...
You are graduating today. Your plan is to work for Dynamo Corporation for 12 years and...
You are graduating today. Your plan is to work for Dynamo Corporation for 12 years and then start your own business. You expect to save and deposit $7,500 a year for the first 6 years and $15,000 a year for the following 6 years. You will make your first deposit one year from today. In addition, your grandfather just gave you a graduation gift of $25,000 which you will deposit immediately. If the account earns 9% compounded annually, how much...
You are offered an annuity that will pay you $10,000 at the end of each year for 20 years, with the first payment being in 10 years from today.
You are offered an annuity that will pay you $10,000 at the end of each year for 20 years, with the first payment being in 10 years from today. If the interest rate is 12% annually, what is the annuity worth to you today?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT