Question

Today you have $30 000 to invest. WO inves nen alternat" es are ava' able to you One would require you o inves your $30 00 now; he other would require the S30 000 i ves:ment wo years rom now. In either case, he investments wi end five years from now. The cash flows for Bach Alternative are provided below. Using MARR of 15%, what should you do wth the $30,000 you have? Cllck the icon to view the altematves descriptlon. More Info Click the icon to we w the interest and annuity table for iscrete compounding when the MARRIs 15% per year. The FW of the Alteratv Round to the nearest dollar.) More Info Alternative 1 - $30.000 Alternative 2 r your answer in Ihe aswer box and Uhei click Check Answe. parts

Answer 1

A person has $30,000 to invest and have to alternatives to invest in. The cash flows of both alternatives are given. The MARR is 15%. In order to decide which alternative to choose, compare present worth or future of alternatives, and choose the alternative with the highest present worth or future worth. Compute the present worth of altermative 1 as follows: Pw(1)--S30.000+ SI 1,000(P/A.15%, 5) --$30,000 S11,000(3.3522) --S30, 000 36,874.2 -$6,874.2 -$6,874 Thus, the present worth of alternative 1 is $6,874 Compute the present worth of alternative 2 as follows Pr(2)--S30.000(P/F, 15%, 2)+517,500(P/A.15%2)(P/F.15%,2) 30,000(0.7561)+S17,500 (2.2832) (0.7561) --S22, 683+S30,210.73 S7,527.73 $7,528 Thus, the present worth of alternative 2 is $7,528 Based on the present worth of both alternatives, person should choose alternative 2 as present worth of alternative 2 is more than the present worth of alternative 1 Now, compute the future worth of alternative 1 as follows: FW(1)-PW(1)(F/P,15%,5) $6,874 (2.0114) $13,826.3636 -$13,826 Thus, the future worth of alternative 1 is S13,826 Now, compute the future worth of altermative 2 as follows FW (2)- PW (2) (F/P,15%,5) $7,528 (2.0114) $15,141.8192 $15,142 Thus, the future worth of alternative 2 is $15,142. Since the future of alternative 1 is less than the future worth of alternative 2, person should choose alternative 2.