Question

Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 now. Alternatively, the buyer will make the series of payments shown in the following table, with each payment made at the beginning of the year. Because Gina doesn’t really need the money today, she plans to let it accumulate in an account that earns 7% annual interest.
Mixed Stream
Beginning of Year (t) Cash Flow (CFt)
1.............. $ 2,000
2............... 4,000
3................. 6,000
4.............. 8,000
5.............. 10,000
a. What is the future value of the lump sum at the end of year 5?
b. What is the future value of the mixed stream at the end of year 5?
c. Based on your findings in parts (a) and (b), which alternative should Gina take?
d. If Gina could earn 10 % rather than 7 % on the funds, would your recommendation in part (c) change? Explain.


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  • CreatedMarch 26, 2015
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