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Foundations Of Financial Management
Found in: Page 282
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

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Short Answer

Your uncle offers you a choice of $105,000 in 10 years or $47,000 today. If money is discounted at 9 percent, which should you choose?

The choice of $47,000 today should be preferred over $105,000 in 10 years.

See the step by step solution

Step by Step Solution

Step 1: Identification of the required information

Future value (FV) = $105,000

Interest Rate (i) = 9%

Period (n) = 10 year

Step 2: Present value (PV)

Step 3: Final decision

The present value of $105,000 in 10 years is $44,353.13 which is lower than $47,000 today. Thus, the option of $47,000 today should be chosen.

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