Question

Q.5: Your employer wants to make an investment, and is interested in the total value of the
investment at the end of an 11 year timeframe. Option A is that your employer pays SR
250,000 today, and receives SR 33,000 each year for 11 years. Option B will return SR
25,000 each year for 11 years, but the seller hasn’t yet quoted a price.
a) Draw a cash-flow diagram for both options, summarizing what is known, and
what is unknown.
b) What is the Future Value of Option A in year 11, assuming MARR = 4-5%?
[Solve with MS Excel].
c) How much should your employer pay for Option B so that it has the same
overall Future Value as Option A?

Answer 1