An unavoidable cost may be met by outlays of $70,000 now and $8,000 at the end of every six months for four years (Alternative 1) or by making monthly payme years (Alternative 2). Interest is 8% compounded quarterly. Compute the present value of each alternative and determine the preferred alternative according to th criterion. The present value of Alternative 1 is $. (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is $ (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The preferred alternative is Alternative 2.
An unavoidable cost may be met by outlays of $70,000 now and $8,000 at the end of every six months for four years (Alternative 1) or by making monthly payme years (Alternative 2). Interest is 8% compounded quarterly. Compute the present value of each alternative and determine the preferred alternative according to th criterion. The present value of Alternative 1 is $. (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is $ (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The preferred alternative is Alternative 2.
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
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Transcribed Image Text:An unavoidable cost may be met by outlays of $70,000 now and $8,000 at the end of every six months for four years (Alternative 1) or by making monthly payments of $1,740 for eight
years (Alternative 2). Interest is 8% compounded quarterly. 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 the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
The present value of Alternative 2 is $.
(Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
The preferred alternative is
Alternative 2.
Alternative 1.
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