You are building a yacht. It will be done in 5 years. You have 3 choices regardi

Question

You are building a yacht. It will be done in 5 years. You have 3 choices regarding payment. 1) You can pay for it now and pay $1,200,000; 2) you can pay for it when it is complete and pay $1,543,000; or 3) you can pay for it with end of the year installments of $250,000 per year for 5 years. Assume an interest rate of 7%.

In order to consider the value of choice 3, what time value of money variable should you solve for in order to compare it against the other choices?
a) FV=1,250,000
b) PV=1,025,049
c) PMT=1,437,685

Explanation / Answer

b) PV=1,025,049

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