Question 1:
The expected cash flow in year 4 = 40,000 kroner.
Question 2:
Net payment in A = 140
Net payment in B = 147.71
Formula: The present value of an annuity due (PV)
PV = {C× [1-(1+r)^-n]/r}×(1+r)
PV = Present value (The cumulative amount available at
Present).
C= Periodic cash flow. 38
r =effective interest rate for the period. [(1.08)^(3/12)]-1 =
0.0194265
n = number of periods.
PV = {38× [1-(1+0.0194265)^-4]/0.0194265}×(1+0.0194265)
PV = 147.71
Net payment in C: 146.8
Formula: The present value of an ordinary annuity (PV)
PV = C× [1-(1+r)^-n]/r
PV = Present value (The cummulative amount available at
Present)
C= Periodic cash flow.
r =effective interest rate for the period.
n = number of periods.
PV = 38.5× [1-(1+0.0194265)^-4]/0.0194265
PV= 146.8
Net payment in D: 140.74
PV = 152/1.08 =140.74
Option A is better.
Answer A. Pay 140 today.
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