Question

Related to Checkpoint 5.4) Present value comparison) You are offered $110,000 today or $360,000 in 12 years. Assuming that you can cam 14 percent on your money, which should you choose? you are offered $360.000 in 12 years and you can earn 14 percent on your money, what is the present value of $360,000? 5,2037705.17 (Round to the nearest cont.)

Answer 1

Answer :-

Present Value of $360,000 in 12 Years = $74721.35

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Explanations:-

Present Value of $360,000 in 12 Years

Present Value = Future Value x Present Value Factor

= $360,000 x [PVIF 14%, 12 Years]

= $360,000 x [1/(1 + r)ⁿ]

= $360,000 x [1/(1 + 0.14)¹²]

= $360,000 x [1/4.8179]

= $360,000 x 0.2075593

= $74721.35

“Present Value of $360,000 in 12 Years = $74721.35”

DECISION

We should choose the receipt of $110,000 today, since the Present Value of $360,000 in 12 years ($74721.35) is less than the amount to be received today ($110,000)