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1. Elma is offered the choice between the following three options: (i) She gets P3,200 each year for ten years, with the first payment due after one year. (ii) She gets P7,000 today, and thereafter P3,000 each year for five years, with the first payment after one year. (iii) She gets P4 000 each year for ten years, with the first payment only due after five years. The annual interest rate is 8%. Calculate the present values of the three options. What would you advise Elma to choose?

1. Elma is offered the choice between the following three options: (i) She gets P3,200 each year for ten years, with the first payment due after one year. (ii) She gets P7,000 today, and thereafter P3,000 each year for five years, with the first payment after one year. (iii) She gets P4 000 each year for ten years, with the first payment only due after five years. The annual interest rate is 8%. Calculate the present values of the three options. What would you advise Elma to choose?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1. Elma is offered the choice between the following three options: (1) She gets P3,200 each year for ten years, with the first payment due after one year. (ii) She gets P7,000 today, and thereafter P3,000 each year for five years, with the first payment after one year. (iii) She gets P4 000 each year for ten years, with the first payment only due after five years. The annual interest rate is 8%. Calculate the present values of the three options. What would you advise Elma to choose?
Transcribed Image Text:1. Elma is offered the choice between the following three options: (1) She gets P3,200 each year for ten years, with the first payment due after one year. (ii) She gets P7,000 today, and thereafter P3,000 each year for five years, with the first payment after one year. (iii) She gets P4 000 each year for ten years, with the first payment only due after five years. The annual interest rate is 8%. Calculate the present values of the three options. What would you advise Elma to choose?
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