Question

Michelle is thinking about two different investments options each for 4 years and interest rate is...

Michelle is thinking about two different investments options each for 4 years and interest rate is 5% annually: Option A: Receive four end of year payments each of $3,000. Option B: Receive four payments of $2,000, $3,000, $5,000 and $2,000 for the first, second, third and fourth year respectively. Which option has the higher present value? *

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

Option A CF Option B CF
1 3000 2857.142857 2000 1904.761905
2 3000 2721.088435 3000 2721.088435
3 3000 2591.512796 5000 4319.187993
4 3000 2468.107424 2000 1645.40495
PV 10637.85151 (Higher) 10590.44328
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are comparing two investment options. Option A requires $10,000 on day 0, and pays five...
You are comparing two investment options. Option A requires $10,000 on day 0, and pays five annual payments starting with $5,000 the first year followed by four annual payments of $2,500 each. Option B also requires $10,000 on day 0, and pays five annual payments of $3,000 each. Using the incremental IRR approach, can you conclude which one of the following statements is correct given these two investment options? Given a positive rate of return, Option A has a higher...
The Simpson Corporation is thinking about investing in two new options, each option has a different...
The Simpson Corporation is thinking about investing in two new options, each option has a different level of risk that is associated with it. Option (A) is a new product and it is investing in a new market. Option (B) is an expansion of a well-established existing market. The risk-free rate is 2% and the expected rate of inflation is 3%. For a low risk investment Simpson Corporation expects 2%, but for a high risk investment Simpson Corporation expects 5%....
Consider two investment options, A and B. For option A you must invest $5,000 now and...
Consider two investment options, A and B. For option A you must invest $5,000 now and an additional $1,000 three years from now. For option B you must invest $3,500 now, $1,500 next year, and $1000 three years from now. In both cases you will receive four annual payments of $2,000, the first of these payments one year from now. Which option would you prefer using a) simple payback method b) discounted payback method, assuming a MARR of 10% c)...
Lottery problem. You win a lottery of $10 million. You have the following two options to...
Lottery problem. You win a lottery of $10 million. You have the following two options to receive it. First, to receive $1million each year at the end of each year for 10 years (annuity option). Second, to receive $5 million right now (cash option). Make sure that you draw the timelines for the two options in order to understand the alternatives. Show your work in answering the questions. a) What is the present value of the annuity option? Assume the...
1a. Your grandmother will be giving you $3,000 per year for the next four years, the...
1a. Your grandmother will be giving you $3,000 per year for the next four years, the first payment beginning at the end of the first year What is the future value of these receivables in year 4 , if the interest rate is 6%? b. Your grandmother will be giving you $3,000 per year for the next four years, the first payment beginning at the end of the first year What is the future value of these receivables in year...
You are considering two investment options. In option A, you have to invest $4500 now and...
You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you have to invest $3500 now, $1000 a year from now, and $1000 three years from now. In option A, you will receive four annual payments of $2000 each (you will get the first $2000 payment a year from now). In option B, you will receive a payment equal to $4000 at the beginning of year...
Two different companies provide maintenance services and their pricing offers are as follows: For both options,...
Two different companies provide maintenance services and their pricing offers are as follows: For both options, the initial payment is at the beginning of the contract, and the monthly payments are at the end of each month. Company 1) An eight-year contract with an initial payment of $12,000, and $2,000/month for the first three years, a payment of $3000 at the end of year 3, and $2,500/month in years 4 to 8. Company 2) A six-year contract, with an initial...
A loan officer presents two options: 20-year FRM of $1,200,000 at an interest rate of 8.875%...
A loan officer presents two options: 20-year FRM of $1,200,000 at an interest rate of 8.875% annually with a brokerage fee of $15,500 20-year FRM of $1,200,000 loan at an interest rate of 7.875% annually with a brokerage fee of $15,500 and 1 point in upfront fees. Both loans require monthly payments, and your firm anticipates paying off the loan at maturity. a)Find the effective cost of borrowing (ECB) for each loan to determine the best option. (20 points) ECB...
You are considering investing in two different instruments. The first instrument will pay nothing for the...
You are considering investing in two different instruments. The first instrument will pay nothing for the first three years, but then it will pay $40,000 per year for five years after that. The second instrument will pay $25,000 for seven years and $40,000 in the eighth year. All payments are made at year-end. If your rate of return on these investments is 6 percent annually, what should you be willing to pay for each instrument today?
BUSI 320 Problem#3 (Decision #1) Use what you have learned about the time value of money...
BUSI 320 Problem#3 (Decision #1) Use what you have learned about the time value of money to analyze each of the following decisions: Decision #1:   Which set of Cash Flows is worth more now? Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:      Option A: Receive a one-time gift of $10,000 today.    Option B: Receive a $1600 gift...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT