Evaluating payment alternatives
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Suppose you can earn a 6-month return of 2.5% on invested cash. Which is a better deal:$1000 at the end of 1 year or $495 at the end of 6 months and another $495 at the end of 12 months?
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The solution explains how to evaluate payment alternatives
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Since cash flows occur at different points in time, we cannot simply add them to make the decision due to time value of money. We need to discount the cash flows and calculate the present value so that both the streams are at the value now (present value) so that ...
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