Assume a 10% discount rate. Which among the choices below have the highest value, A or...
Assume a 10% discount rate. Which among the choices below have the highest value, A or B, if any? Show work.
A.$1,000 per year for perpetuity (first payment at the end of the first period).
B.$10,000 in cash
show how to solve with formula and Financial Calculator
Homework Answers
Discount rate = 10%
Choice A: Present Value of perpetuity = Cash flow at end of
period/Discount rate
1000/10% = 10000
Choice B: $10000 in Cash. present Value is $10000
So, Both options A and B are having equal present
values.
Any option can be chosen
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