Using the time value of moneyYour grandfather would like to share some of his fortune with you. He offers to give youmoney under one of the following scenarios (you get to choose):|1. $8,750 per year at the end of each of the next seven years2. $50,050 (lump sum) now3. $100,250 (lump sum) seven years from nowRequirement1. Calculate the present value of each scenario using a 6% discount rate. Which scenarioyields the highest present value? Round to nearest whole dollar.2. Would your preference change if you used a 12% discount rate?

Given, Scenario 1 : $8750 per year at the end of each 7 years. Scenario 2 : $50,500 lupsum now…

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

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

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 28P

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Question

Using the time value of money
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 seven years
2. $50,050 (lump sum) now
3. $100,250 (lump sum) seven years from now
Requirement
1. Calculate the present value of each scenario using a 6% discount rate. Which scenario
yields the highest present value? Round to nearest whole dollar.
2. Would your preference change if you used a 12% discount rate?

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