Question

Assuming a discount rate of 10%, which of the following projects will have the highest present value?(Choose)

1)-A €10,000 lump-sum payment received today
2)- A €5,000 payment received today plus €5,000 to be received in one year
3)- A€10,000 lump-sum payment received in one year

Answer 1

The present value is computed as shown below:

1. The amount is computed as follows:

= 10,000 euro (The present value will be equal to the amount of money received as the same is received today)

2. The amount is computed as follows:

= 5,000 euro + 5,000 euro / 1.10

= 9,545.45 euro Approximately

3. The amount is computed as follows:

= 10,000 euro / 1.10

= 9,090.91 euro Approximately

So, the correct answer is option 1.

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