Present Value of a Lump Sum
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P3-6. Robert Williams is considering an offer to sell his medical practice, allowing him to retire five years early. He has been offered $500,000 for his practice and can invest this amount in an account earning 10 percent per year, compounded annually. If the practice is expected to generate the following cash flows, should Robert accept this offer and retire now?
End of Year Cash Flow
1 $150,000
2 150,000
3 125,000
4 125,000
5 100,000.
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Solution Summary
The solution determines if Robert should accept the offer and retire now based on the generated cash flows (see attachment).
Solution Preview
Please see the attached file.
FV on original retirement date if early retirement is chosen:
$500,000 × (1.10)5 = ...
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