Razak has some property for sale and has received two offers. The first offer is for RM89,500 today in cash. The second offer is the payment of RM35,000 today and an additional guaranteed RM70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should he accept and why? (assuming no cost involved) Select one: A. Kumar should accept the second offer today because it has the lower future value B. Kumar should accept the first offer today because it has the higher present value C. Kumar should accept the second offer because it has the higher present value D. Kumar should accept the first offer as it is a lump sum payment

Razak has some property for sale and has received two offers. The first offer is for RM89,500 today in cash. The second offer is the payment of RM35,000 today and an additional guaranteed RM70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should he accept and why? (assuming no cost involved) Select one: A. Kumar should accept the second offer today because it has the lower future value B. Kumar should accept the first offer today because it has the higher present value C. Kumar should accept the second offer because it has the higher present value D. Kumar should accept the first offer as it is a lump sum payment

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 8Q

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Jim Nance has been offered an investment that will pay him $860 three years from today. a. If his opportunity cost is 9% compounded annually, what value should he place on this opportunity today? b. What is the most he should pay to purchase this payment today? c. If Jim can purchase this investment for less than the amount calculated in part (a), what does that imply about the rate of return that he will earn on the investment?
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