Share
Explore BrainMass

Time value comparisions

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?

Solution Preview

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 ...

Solution Summary

Find the value today of each alternative in the case.

$2.19