Essay about Present Value Applications

645 Words 3 Pages
Present Value Applications

2. You are given a choice of being paid either $18,000 now or $20,000 two years from now.
Which would you rather have, assuming you could earn 10% interest on any cash you have now?

18,000(121) = 21,780
It would be better to have 18,000 now than to have 20,000 in 2 years.

4. Would you be better off accepting $27,000 now or $10,000 at the end of each of the next three years, assuming that you can earn interest at 1) 6%? or 2) 4%?

6% 27,000(1.19102) = $32,157.54
4% 27,000(1.12486) = $30,371.22

6% 10,000(3.1836) = $31,836.00
4% 10,000(3.1216) = $31,216.00
If you can get 6% interest rate, then it is better to accept $27,000, but if you can only get 4% then it is better to accept $10,000.

6.
…show more content…
0 2,000 3,000 3,000
4 1,000 1,000 2,000 2,000 3,000 3,000
5 1,000 0 2,000 2,000 3,000 0
6 0 0 0 5,000 4,000 5,000

A)
10% $1,000(3.7908 – 0.9091) = $2881.70
15% $1,000(3.3522 – 0.8696) = $2,482.60

B)
10% $1,000(3.3522) = $3,169.90
15% $1,000(0.8696) = $2,855.00

C)
10% $2,000(2.4869) = $4,973.80 + $1,500 = $6,473.80(0.9091) = $5,275.34 + $1,500 = $7,385.33
15% $2,000(2.2832) = $4,566.40 + $1,500 = $6,066.40(0.8696) = $5,275.34 + $1,500 = $6,775.34

D)
10% $2,000(3.7908 – 0.9091) = $5,599.96 + ($5,000(0.5645 – 0.9109)) = $7,331.96
15% $2,000(3.3522 – 0.8696) = $4,965.20 + ($5,000(0.8696 – 0.4323)) = $7,151.70

E)
10% $3,000(3.1699) = $9,509.70 + $4,000 = $13,509.70 + ($4,000(0.6209)) = $15,993.30
15% $3,000(2.8550) = $2,483.60 + $4,000 = $12,565.00 + ($4,000(0.4323)) = $14,294.20

F)
10% $5,000(0.5645) = $2,822.50 + ($3,000(2.4869)) = $10,283.20 + $1,000 = $11,283.20
15% $5,000(0.4323) = $2,161.50 + ($3,000(2.2832)) = $9,011.10 + $1,000 =

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