P529 Value of a single amount versus a mixed stream Gina Vitale has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 at the closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next 5 years. Because Gina doesnt really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. Given her desire to buy a house at the end of 5 years after closing on the sale of the lot, she decides to choose the payment alternative$24,000 single amount or the mixed stream of payments in the following tablethat provides the higher future value at the end of 5 years. Which alternative will she choose?

Mixed stream Beginning of year Cash flow 1 $ 2,000 2 4,000 3 6,000 4 8,000 5 10,000

Lump Sum Deposit:

N

I

PV

Solve for FV

5

7%

$ 24,000

Mixed Stream of Payments:

Number of

Beginning

Years to

Cash

Interest

Future

of Year

Compound

Flow

Rate

Value

1

5

$ 2,000

7%

$2,805.10

2

4

$ 4,000

7%

3

3

$ 6,000

7%

4

2

$ 8,000

7%

5

1

$ 10,000

7%

Sum

What alternative should Gina use?