Mei Ling is considering 2 bonus schemes offered by her employer. In either case, she plans...
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Mei Ling is considering 2 bonus schemes offered by her employer. In either case, she plans to leave her money in a deposit account earning 5% pa. The first option is a single sum of $18,000 to be received today and the second is a mixed stream of payments given at the beginning of each year as follows: Beginning of year 1 C. 2 3 4 5 Cash flow $2,000 $3,000 $4,000 $5,000 $6,000 By using a time-line, a. What is the future value of the lump-sum at the end of 5 years? b. What is the future value of the mixed stream at the end of 5 years? [Hint: calculate the future value of each cash flow and then sum all 5 FVs] Which alternative should Mei Ling choose assuming that she intends to stay with the company for at least the next 5 years? Mei Ling is considering 2 bonus schemes offered by her employer. In either case, she plans to leave her money in a deposit account earning 5% pa. The first option is a single sum of $18,000 to be received today and the second is a mixed stream of payments given at the beginning of each year as follows: Beginning of year 1 C. 2 3 4 5 Cash flow $2,000 $3,000 $4,000 $5,000 $6,000 By using a time-line, a. What is the future value of the lump-sum at the end of 5 years? b. What is the future value of the mixed stream at the end of 5 years? [Hint: calculate the future value of each cash flow and then sum all 5 FVs] Which alternative should Mei Ling choose assuming that she intends to stay with the company for at least the next 5 years?
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Answer rating: 100% (QA)
To determine the future value of each option we can use the formula for compound interest Future Val... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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