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    cnichols33's Avatar
    cnichols33 Posts: 9, Reputation: 1
    New Member

    May 19, 2007, 08:27 PM
    Alternatives when accepting money
    What if three alternatives where offered, which one would you accept? Assuming you could earn 11% annually..

    1. 10,000 now

    2. 2,000 a year for eight years

    3. 24,000 at the end of eight years

    Would your answer change if you could receive 12% annually? Why? Or why not?
    bunnyKutty's Avatar
    bunnyKutty Posts: 60, Reputation: 5
    Junior Member

    May 19, 2007, 08:53 PM
    Option 1: 10,000 now

    Option 2: 2,000 a year for 8 years
    Present value of future cash flows = 2000 * 5.146 (PV factor of an annuity for 8 years @ 11%)
    = $10,292

    Option 3: 24,000 at the end of 8 years
    Present value of cah flow = 24,000 * 0.434 (Pv factor of a cash flow for 8 years @ 11 %)
    = $10,416

    Option 3 is better as the val;ue of cash flows is greater than the other 2 options.

    Now try with 12 % PV factors and see what the answer would be.

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