Homework Answers
| Using 8% | ||
| Present value of Annuity of $1 | 5.206 | =(1-(1.08)^-7)/0.08 |
| Present value of $1 | 0.583 | =1/1.08^7 |
| Present value | ||
| Scenario 1 | 40347 | =7750*5.206 |
| Scenario 2 | 50250 | |
| Scenario 3 | 58446 | =100250*0.583 |
| Scenario 3 yields highest present value | ||
| Using 12% | ||
| Present value of Annuity of $1 | 4.564 | =(1-(1.12)^-7)/0.12 |
| Present value of $1 | 0.452 | =1/1.12^7 |
| Present value | ||
| Scenario 1 | 35371 | =7750*4.564 |
| Scenario 2 | 50250 | |
| Scenario 3 | 45313 | =100250*0.452 |
| Yes, the preference changes | ||
| Scenario 2 yields highest present value | ||
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