Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise.Determining present valueYour grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose):$8,750 per year at the end of each of the next six years$49,650 (lump sum) now$100,450 (lump sum) six years from nowRequirementsCalculate the present value of each scenario using a 6% discount rate. Which scenario yields the highest present value? Round to the nearest dollar.Would your preference change if you used a 12% discount rate?

Question
Asked Jan 20, 2020
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Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise.

Determining present value

Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose):

  1. $8,750 per year at the end of each of the next six years
  2. $49,650 (lump sum) now
  3. $100,450 (lump sum) six years from now

Requirements

  1. Calculate the present value of each scenario using a 6% discount rate. Which scenario yields the highest present value? Round to the nearest dollar.
  2. Would your preference change if you used a 12% discount rate?
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Expert Answer

Step 1
  1. Compute present value if discount rate is 6%.

Scenario A:

Accounting homework question answer, step 1, image 1
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Step 2

Scenario B:

A lump sum amount of $49,650 given now.

Step 3

Scenario C:

...
Accounting homework question answer, step 3, image 1
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