S12-6 (similar to i Question Help Your grandfather would like to share some of h

Question

S12-6 (similar to i Question Help Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $8,000 a year at the end of each of the next eight years 2. $49,950 (lump sum) now 3. $99,850 (lump sum) eight years from now Calculate the present value of each scenario using a 6% interest rate, which scenario yields the highest present value? Would your preference change if you used a 12% interest rate? (Click the icon to view the present value annuity factor table.)(Click the icon to view the present value factor table.) (Click the icon to view the future value annuity factor table.)(Click the icon to view the future value factor table.) Using a 6% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar. Present value Scenario 1

Explanation / Answer

Scenario 1 Present value :

Present value = 8000*6.20979 = 49678

So Scenario 1 present value is $49678

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