An obligation can be settled by making a payment of $10,000 now and a final payment of $3,500 in three years (Alternative 1). Alternatively, the obligation can be settled by payments of $1,100 at the end of every six months for eight years (Alternative 2). Interest is 11% compounded semi-annually. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is $ (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
An obligation can be settled by making a payment of $10,000 now and a final payment of $3,500 in three years (Alternative 1). Alternatively, the obligation can be settled by payments of $1,100 at the end of every six months for eight years (Alternative 2). Interest is 11% compounded semi-annually. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is $ (Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
*2
Transcribed Image Text:An obligation can be settled by making a payment of $10,000 now and a final payment of $3,500 in three
years (Alternative 1). Alternatively, the obligation can be settled by payments of $1,100 at the end of every six months
for eight years (Alternative 2). Interest is 11% compounded semi-annually. Compute the present value of each
alternative and determine the preferred alternative according to the discounted cash flow criterion.
The present value of Alternative 1 is $
(Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education