Time value comparison of single amounts: in exchange for a 20000 payment today,

Question

Time value comparison of single amounts: in exchange for a 20000 payment today, a well known company will allow you to choose one of the alternative shown below. Your opportunity coast is 11% ....alternative A is 34000 at end of 3 years- alternative B is 54500 at end of 9 years.... Alternative C is 184000 at the end of 20 years. Question 1 the present value of alternative A is ..... Question 2 the present value of alternative B is.... Question 3 the present value of alternative C is ... Question 4 are all the alternatives acceptable , that is worth at least 20000 today? Question 5 which alternative if any will you take ..... A B C or none.

Explanation / Answer

Present value from a Future value can be calculated as follows

PV = FV / (1+r)n

Here PV is Present Value, FV is Future Value, r is interest rate which is 11%, n is number of years

So all the PV's for 3 alternatives are calculated in the table below

All the alternatives fetches more than 20,000 so all are acceptable

Given an option a person should choose Alternative A, since it is giving more returns.

Years Then Value PV A 3               34,000.00        24,860.51 B 9               54,500.00        21,305.40 C 20             184,000.00        22,822.24

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