Question

Sharon Smith will receive $1.25 million in 30 years. The discount rate is 16%. As an alternative, she can receive $15,000 today. Which should she choose? Use Appendix B to calculate the answer.

Multiple Choice

A_the $1.25 million dollars in 30 years.

B_$15,000 today.

C_she should be indifferent.

D_need more information.

Answer 1

Present Value of 1.25 million after 30 years @ 16%

Present Value = Future Value / (1+r)^n

r = 16% OR 0.16

n = 30 years

= 1,250,000 / (1+0.16)^30

= $ 14560.30

And today we are getting $ 15000, which is better option as present value of 1.25 million is 14560.30 which is less than what we are getting today.

Therefore, option B is correct.

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.