Mr. and Mrs. Chan have listed for sale a residential building lot they own in a nearby town. They are considering two offers. The offer from the Smiths is for $145,000 consisting of $45,000 down and the balance to be paid in six months. The offer from the Kims is for $149,000 consisting of $29,000 down and $120,000 payable in one year. The Chans can earn an interest rate of 4.5% on low-risk short-term investments.
a. What is the current economic value to the Chans of each offer?
b. Other things being equal, which offer should the Chans accept? Howmuchmoreis the better offer worth (in terms of current economic value)?