Question

Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,900,000 at the end of the 12 years. Which alternative should Dubois select? Assume the interest rate is constant over the entire investment. I need this in EXCEL explaining the step so I understand.

Answer 1

Solution:

Let interest rate is 10% constant over the entire investment.

Alternative 1
Annual Receipts	$80,000.00
n	12
i	10%
Table value	6.813692
Present value	$545,095.35

Alternative 2
Lumpsum payment	$1,900,000.00
n	12
i	10%
Table value	0.318631
Present value	$605,398.55

As present value of alternative 2 is higher than present value of alternative 1, therefore Dubois should select lump sum payment of $1,900,000 at the end of 12 years.