Steven found two feasible options for an apartment to rent for the next 2 years. Option A requires monthly rent of $1,500 to be paid at the beginning of each month. Option B allows for end-of-month rent payments of $1,500 (same amenities as in option A). Steven uses a fairly high annual discount rate of 24% (sadly, he is also a high credit risk).

Find the PV of the future rent payments for both options over the 2-year time period and explain which one Steven will prefer, if he bases his decision strictly on cash flow. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places e.g. 5,125.36.)

Answer rating: 100% (QA)

To calculate the present value of the future rent payments for both options we need to use the pre... View the full answer