Calculate each scenario and determine which scenario provides Joe with enough money to buy the car at the end of 4-years of college. Specifically state which scenario provides the most money.

Joe Cobber’s grandparents want to give him some money when he graduates from high school. His grandparents offered three choices:

1. Receive $16,000 immediately. Assume interest is compounded annually.
2. Receive $2,400 at the end of each six months for four years. Joe will receive the firsts check in six months.
3. Receive $4,640 at the end of each year for four years. Assume interest is compounded annually.

Joe wants to have money for a car when he graduates from Concordia in four years. Assuming an interest rate of 8%, what option should he choose to have the most money in four years.

Question 2: BoomTown Corp. is contemplating the purchase of a machine that will produce cash savings of $27,000 per year for 8 years. At the end of eight years, the machine can be sold to realize cash flows of $5,500.

1. Assuming a 9% rate, calculate the total present value of the cash inflows and the cash savings from the machine. There are two separate cash flows that require calculations and the total savings is the sum of those two cash flows.

Answer rating: 100% (QA)

Answer to Question 1 Cash Flow at the end of 4th year under all the three options Option 1 Receive 1... View the full answer