Question

As an innovative way to pay for various software packages, a new high-tech service company
has offered to pay your company, Custom Computer Services (CCS), in one of two ways: (1)
pay $480,000 now, (2) pay $1.1 million 5 years from now.
a) If the real interest rate is 10% per year and the inflation rate is 6% per year, which offer
should you accept? (15 points)
b) If your company was offered to be paid an amount of money 5 years from now that will
have the same purchasing power as $850,000 now, would this change your decision resulted
in part (a) of the question. (consider the same interest and inflation rates given in part a).

Answer 1