Question

# Dubois Inc. has \$600,000 to invest. The company is trying to decide between two alternative uses...

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.

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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