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Time value comparisions

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In exchange for a $20,000 payment today, a well known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 11%.

Alternative Single Amount
A $28,500 at end of 3 years
B $54,000 at end of 9 years
C $160,000 at end of 20 years

A) Find the value today of each alternative
B) Are all the alternatives acceptable-that is, worth $20,000 today?
C) Which alternative, if any, will you take?

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Solution Summary

Find the value today of each alternative in the case.

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A) Find the value today of each alternative

A $28,500 at end of 3 years
P=present value, F= Future value r= rate of interest n=duration
P=F/(1+r)^n
Thus the value= $20839

B $54,000 at end of 9 years
P=present value, F= Future ...

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