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Randy has a business proposition for Marco. If Marco gives Randy $11 today (assume today is...

Randy has a business proposition for Marco. If Marco gives Randy $11 today (assume today is February 27, 2018, Randy will give Marco $2 on February 27, 2019, $3 on February 27, 2020, $4 on February 27, 2021, and $5 on February 27, 2022. Assuming that Marco’s cost of capital is 5.0% should he accept Randy’s offer? Select one: a. No b. Yes

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Answer #1
b. Yes he should accept Randy's offer
Statement showing Cash flows
Particulars Time PVf 11% Amount PV
Cash Outflows                              -                        1.00                   (11.00)                   (11.00)
PV of Cash outflows = PVCO                   (11.00)
Cash inflows                         1.00                 0.9524                       2.00                       1.90
Cash inflows                         2.00                 0.9070                       3.00                       2.72
Cash inflows                         3.00                 0.8638                       4.00                       3.46
Cash inflows                         4.00                 0.8227                       5.00                       4.11
PV of Cash Inflows =PVCI                     12.19
NPV= PVCI - PVCO                       1.19
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