Homework Answers
| Formula to calculate present value of annuity | ||||
| Present value of annuity | Annual payment*(1-((1+r)^-n)/r | |||
| Calculation of present value of option (a) | ||||
| Present value of annuity | Annual payment*Present value of annuity of $1 (i=13%, n= 20) | |||
| Present value of annuity | 1800000*7.0248 | |||
| Present value of annuity | $12,644,640 | |||
| Calculation of present value of option (b) | $12,000,000 | |||
| Calculation of present value of option (c) | ||||
| Present value of annuity | Annual payment*Present value of annuity of $1 (i=13%, n= 20) | |||
| Present value of annuity | 2000000+1500000*7.0248 | |||
| Present value of annuity | $10,737,200 | |||
| 2. | ||||
| Option (a) should be selected as it has higher value in present value terms | ||||
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After hearing a knock at your front door, you are surprised to see the Prize Patrol...
After hearing a knock at your front door, you are surprised to see the Prize Patrol...
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