In an excel file, You are presented with two options for receiving cash flows: Option A No payments in the first five years and annual payments of $5,000 at the end of year 6 through year 13. Option B A one-time lump-sum payment of $10,000 at the end of the first year.

a. If the annual interest rate is 5%, which option would you prefer? [4 points]

b. Consider the cash flows of option A minus Option B. Compute the IRR of this stream of cash flows.

C. If the discount rate is greater than the IRR which investment should you chose? If the discount rate is less than the IRR which investment should you chose? [5 points]

d. Use economic intuition, to explain why the appeal of Option 1 relative to Option 2