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    Inheritance Decisions: Opportunity Cost

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    Your uncle has given you three alternatives for your inheritance. You can have $12,000 now; $2,000 per year for the next eight years; or $18,000 at the end of eight years. You assume your opportunity cost or discount rate is 12% annually. Which inheritance alternative would be best? Why?

    (see details in attached file)

    Consider the following project cash flows

    Year Project A Project B
    0 investment
    outflow
    -$200

    -$300

    1

    60

    200

    2

    70

    100

    3

    80

    100

    4

    80

    The opportunity cost is 11%.
    - Calculate the NPV of each project. Which project should be chosen?
    - IRR. What are the internal rates of return on projects A and B?

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    https://brainmass.com/economics/finance/inheritance-decisions-opportunity-cost-80481

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    Your uncle has given you three alternatives for your inheritance. You can have $12,000 now; $2,000 per year for the next eight years; or $18,000 at the end of eight years. You assume your opportunity cost or discount rate is 12% annually. Which inheritance alternative would be best? Why?

    We need to find the present value of the three alternatives and choose the one with the highest present value.
    Option 1 - $12,000 now. Since the amount is being given now, the present value is $12,000
    Option 2 - $2,000 ...

    Solution Summary

    The solution explains the calculation of present value and IRR and NPV of projects.

    $2.19