Homework Answers
We will find the present value of each option.
Present Value = Future Value / (1 + discount rate)^year
a)
Present Value = 40,000 / (1 + 8%)^4
Present Value = 40000 / 1.36048896
Present Value = $ 29401.19
b) Present Value = $ 25000
C) Present Value = 10000 + [4000 / (1+8%)^1] + [4000 / (1+8%)^2] + [4000 / (1+8%)^3] + [4000 / (1+8%)^4]
Present Value = 10000 + [ 4000 / 1.08 ] + [ 4000 / 1.17 ] + [ 4000 / 1.26 ] + [ 4000 / 1.36 ]
Present Value = 10000 + 3703.70 + 3429.36 + 3175.33 + 2940.12
Present Value = $ 23248.51
Hence, option A has highest present value and we should choose that only
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