Q29BP

Expert-verifiedFound in: Page 284

Book edition
16th

Author(s)
Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Pages
768 pages

ISBN
9781259277160

**Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now; $2,200 a year for nine years; or $31,000 at the end of nine years. Assuming you could earn 10 percent annually, which alternative should you choose? If you could earn 11 percent annually, would you still choose the same alternative?**

- Case 1 - Alternative 3
- Case 2 - Alternative 2

Present value of first alternative = $7,500

Since the present value is higher for third alternative, so alternative third would be preferred.

Present value of first alternative = $7,500

Since the present value under this case is higher for second alternative, so alternative second would be preferred .

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