Question

In: Finance

After providing a service, you are offered the following options. If your required rate of return...

After providing a service, you are offered the following options. If your required rate of return is 12%, which of the following options will create the maximum value? Group of answer choices Receiving $9,000 after 5 years from now. Receiving $2,000 at the end of each year for next 3 years Receiving $50 at the end of each month forever. Receiving $4,800 now

Solutions

Expert Solution

Receiving $9,000 after 5 years from now.

Working:

Present Value of Receiving $9,000 after 5 years from now =-pv(rate,nper,pmt,fv) Where,
= $ 5,106.84 rate = 12%
nper = 5
pmt = 0
fv = $       9,000
Present Value of Receiving $2,000 at the end of each year for next 3 years =-pv(rate,nper,pmt,fv) Where,
= $ 4,803.66 rate = 12%
nper = 3
pmt = $       2,000
fv = 0
Present Value of Receiving $50 at the end of each month forever = Monthly Cash flow / Monthly Interest rate
= $       50.00 / (12%/12)
= $       50.00 / 0.01
= $ 5,000.00
Present Value of Receiving $4,800 now = $ 4,800.00

jeff jeffy answered 1 year ago
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