Please I need answer for the first image. Then, check my answer for the second o
ID: 2571421 • Letter: P
Question
Please I need answer for the first image. Then, check my answer for the second one Please I need answer for the first image. Then, check my answer for the second one Problem S Time Value of Money Applications 8 points Part A Smith Trucking defendant's in alternatives. Determi should use to compounded annually. won a settlement in a lawsuit and was offered s100,000 today by the company. The insurance company also offered two other ne the amount from each of the following alternatives that Smith surance compare to the S 100,000. Assume an interest rate of 7% with interest Support your answer s with the appropriate calculations. D $25,000 per year for the next 5 years (payment made at the end of the II) A lump sum payment of $200,000 at the end of the eleventh year Part B Sally's grandmother is going to give her a gift when she graduates from college in four years. The grandmother told Sally she can have $25,000 at the end of the fourth year or she can choose from either of the two following alternatives. Determine the amount from each of the alternatives that Sally should use to compare to the $25,000. Assume an interest rate of 7% with interest compounded annually. Support each answers with appropriate computations. A payment of $18,000 today. $6,000 at the end of each year for the next four years.Explanation / Answer
Part A
I) Present value = Payment per year x PVA7%,5
= $25000 x 4.100197
= $102505
II) Present value = Cash flow at period 11 x PV7%,11
= $200000 x 0.475092
= $95019
III) The last alternative is to receive $100000 now.
Smith should accept the first alternative of having $25000 per year for 5 years.
Part B
I) Present value = Cash flow at period 4 x PV7%,4
= $25000 x 0.7628952
= $19072
II) Present value = $18000
III) Present value = Payment per year x PVA7%,4
= $6000 x 3.387211
= $20323
Sally should choose the last alternative of receiving $6000 per year for 4 years.