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.

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