Question

You have just learned that you are a beneficiary in the will of your late Aunt Susan. The executrix of her estate has given you three options as to how you may receive your inheritance.

Required:
1-a.	Calculate the present value for the following assuming that the money can be invested at 12% percent. (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

		Present Value
a.	You may receive $68,000 immediately.	$
b.	You may receive $91,000 at the end of seven years.	$
c.	You may receive $25,000 at the end of each year for seven years (a total of $175,000).	$

1-b.	If you can invest money at a 12% return, which option would you prefer?

Answer 1

1 )

a) Present Value = $ 68000

b) Present Value = Future Value / ( 1 + r )^n

Where ,

Future Value = $ 91000

r = 12%

n = 7 Years

Present value = 91000 ( 1 + .12 )^ 7

Present Value = 91000 * 0.452

Present Value = $ 41132

c) Present Value = 25000 * PVAF ( 12% , 7 years )

Present value = 25000 * 4.564

Present Value = $ 114100

1 - b) Option C Would be preferred as it is better ( higher value ) than others.

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