apter 5 homework KQuestion 17 (of 20) value 10.00 points Problem 5-35 Comparing

ID: 2749067 • Letter: A

Question

apter 5 homework KQuestion 17 (of 20) value 10.00 points Problem 5-35 Comparing Cash Flow Streams [LO 1 You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements different salary arrangements. You can have $7,800 per month for the next two years, or you can have .500 per month for the next two years, along with a $35,000 signing bonus today. Assume the interest rate is 6 percent compounded monthly Requirement 1: If you take the first option. S7, 800 per month for two years, what is the present value? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e-g. 32.16).) Present value Requirement 2: What is the present value of the second option? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g. 32.16)) Present value Chapter 5 ho..X+. ezto.mheducation.com/hm.tpx

Explanation / Answer

SOLUTION :

PV = PMT x [(1 – (1+r) -N )) / r]

OPTION 1

PMT=MONTHLY PAYMENT=7800, PV = PRESENT VALUE, r = interest rate=.06/12, n=number of payment =24

PV =7800 x [(1 – (1+.06/12) -24 )) /(.06/12)

=175990.36

OPTION 2

PMT=MONTHLY PAYMENT=6500, PV = PRESENT VALUE, r = interest rate=.06/12, n=number of payment =24

PV =6500 x [(1 – (1+.06/12) -24 )) /(.06/12) + (35000X 1)

= 146658.63 + 35000

=181658.63