Refer to the previous question. The present value (PV) of a future cash-flow value (FV) is defined

Question:

Refer to the previous question. The present value (PV) of a future cash-flow value (FV) is defined as:

PV = FV/(1+r)n

Where n is the number of years into the future in which the cash flow occurs and r is the discount rate. Suppose that the discount rate for Banisco is 10% (r = 0.1).

a. Create a decision tree for this problem, computing the PV of the total interest paid under each possible scenario.

b. Which decision should the company make if it wants to minimize the expected PV of its total interest payments?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...