Which set of Cash Flows is worth more now? Assume that your grandmother wants to give you
Question:
Which set of Cash Flows is worth more now?
Assume that your grandmother wants to give you a generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:
Option A: Receive a one-time gift of $ 9000 today.
Option B: Receive a $1400 gift each year for the next 10 years. The first $1400 gift would be
received 1 year from today.
Option C: Receive a one-time gift of $18,000 10 years from today.
Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__________ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Compute the Present Value of each of these options if you expect the interest rate to be 7% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__________ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Compute the Present Value of each of these options if you expect to be able to earn 10% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__________ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis