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Payback Option with the Highest Return

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Bill Martin made an investment several years ago, and he now has an option as to how it will take the return on that investment. Option 1 is to receive an immediate cash payment of $100,000. Option 2 is to receive a payment of $10,000 per year for the next 10 years and then to receive a final payment of $100,000 in the eleventh year. Option 3 is to receive a payment of $20,000 per year for the next 10 years. Bill desires a rate of return on this investment of at least 8%. Which option will return the most to Bill?

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Solution Summary

The best return option for an investment made several years ago is worked out in an attached Excel spreadsheet.

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Radhika Lakshmi, MPhil
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  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
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