Homework Answers
True.
The explanation is as follows:
| Option-1 Amount received today $110,000. So, present value remains $110,000 | ||||||
| Option-2 Amount of $10,000 received at the end of each month | ||||||
| MONTH | cash inflow | PVF @ 2% | Present value | |||
| 1 | 10000 | 0.980 | 9803.922 | |||
| 2 | 10000 | 0.961 | 9611.688 | |||
| 3 | 10000 | 0.942 | 9423.223 | |||
| 4 | 10000 | 0.924 | 9238.454 | |||
| 5 | 10000 | 0.906 | 9057.308 | |||
| 6 | 10000 | 0.888 | 8879.714 | |||
| 7 | 10000 | 0.871 | 8705.602 | |||
| 8 | 10000 | 0.853 | 8534.904 | |||
| 9 | 10000 | 0.837 | 8367.553 | |||
| 10 | 10000 | 0.820 | 8203.483 | |||
| 11 | 10000 | 0.804 | 8042.63 | |||
| 12 | 10000 | 0.788 | 7884.932 | |||
| Present value of Cash inflows | 105,753 | |||||
| As, the repsent value of Option-1 is better | ||||||
| Option-1 to receive the lumpsum of $110,000 is accepted | ||||||
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