Please help with these couple of financial accounting problem: You are offered a
ID: 2460766 • Letter: P
Question
Please help with these couple of financial accounting problem:
You are offered an investment that will pay $24,000 per year for 7 years. If you feel that the appropriate discount rate is 11%, what is the investment worth to you today?
You have a rich uncle who has offered you some money upon successfully completing your accounting course. Assuming an annual interest rate of 8%, which alternative should you choose? Show your work for each alternative
$30,000 now
$6,000 a year for 6 years, with the first payment at the end of the first year
$4,000 a year for 5 years with the first payment made at the end of year 1, and then $19,000 at the end of the 6th year.
Explanation / Answer
1)Value of investment today =PVAF@11%,7 *CF
= 4.71220 *24000
= $ 113092.71
2)Option 1 = $ 30000
Option 2 = PVAF@8%,6 *CF
= 4.62288 * 6000
= $ 27737.28
Option 3= (PVAF@8%,5 *CF) +(PVF@8%,6*CF6)
= (3.99271 * 4000) +(.63017 * 19000)
= 15970.84+ 11973.23
= $ 27944.07
Option 1 is better as under that alternative we receive highest payment of $ 30000