On Joe Martin's graduation from college, Joe's uncle promised him a gift of $11,400 in cash or $740 every quarter for the next 5 years after graduation. Assume money could be invested at 8% compounded quarterly. (Use Table 13.2.) a. Calculate the present value of options. (Do not round intermediate calculations. Round your answers to the nearest cent.) Present value Option 1 Option 2 b. Which offer is better for Joe? O Option 2 O Option 1

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On Joe Martin's graduation from college, Joe's uncle promised him a gift of $11,400 in cash or $740 every quarter for the next 5 years
after graduation. Assume money could be invested at 8% compounded quarterly. (Use Table 13.2.)
a. Calculate the present value of options. (Do not round intermediate calculations. Round your answers to the nearest cent.)
Present value
Option 1
Option 2
b. Which offer is better for Joe?
O Option 2
O Option 1
Transcribed Image Text:On Joe Martin's graduation from college, Joe's uncle promised him a gift of $11,400 in cash or $740 every quarter for the next 5 years after graduation. Assume money could be invested at 8% compounded quarterly. (Use Table 13.2.) a. Calculate the present value of options. (Do not round intermediate calculations. Round your answers to the nearest cent.) Present value Option 1 Option 2 b. Which offer is better for Joe? O Option 2 O Option 1
TABLE 13-2
Present value of an annuity of $1
Period
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
1
0.9804
0.9709
0.9615
0.9524
0.9434
0.9346
0.9259
0.9174
0.9091
0.9009
0.8929
0.8850
2
1.9416
1.9135
1.8861
1.8594
1.8334
1.8080
1.7833
1.7591
1.7355
1.7125
1.6901
1.6681
2.8839
2.8286
2.7751
2.7232
2.6730
2.6243
2.5771
2.5313
2.4869
2.4437
2.4018
2.3612
4
3.8077
3.7171
3.6299
3.5459
3.4651
3.3872
3.3121
3.2397
3.1699
3.1024
3.0373
2.9745
4.7134
4.5797
4.4518
4.3295
4.2124
4.1002
3.9927
3.8897
3.7908
3.6959
3.6048
3.5172
5.6014
5.4172
5.2421
5.0757
4.9173
4.7665
4.6229
4.4859
4.3553
4.2305
4.1114
3.9975
7
6.4720
6.2303
6.0021
5.7864
5.5824
5.3893
5.2064
5.0330
4.8684
4.7122
4.5638
4.4226
8.
7.3255
7.0197
6.7327
6.4632
6.2098
5.97 13
5.7466
5.5348
5.3349
5.1461
4.9676
4.7988
8.1622
7.7861
7.4353
7.1078
6.8017
6.5152
6.2469
5.9952
5.7590
5.5370
5.3282
5.1317
10
8.9826
8.5302
8.1109
7.7217
7.3601
7.0236
6.7101
6.4177
6.1446
5.8892
5.6502
5.4262
11
9.7868
9.2526
8.7605
8.3064
7.8869
7.4987
7.1390
6.8052
6.4951
6.2065
5.9377
5.6869
12
10.5753
9.9540
9.3851
8.8632
8.3838
7.9427
7.5361
7.1607
6.8137
6.4924
6.1944
5.9176
13
11.3483
10.6350
9.9856
9.3936
8.8527
8.3576
7.9038
7.4869
7.1034
6.7499
6.4235
6.1218
14
12.1062
11.2961
10.5631
9.8986
9.2950
8.7455
8.2442
7.7862
7.3667
6.9819
6.6282
6.3025
15
12.8492
11.9379
11.1184
10.3796
9.7122
9.1079
8.5595
8.0607
7.6061
7.1909
6.8109
6.4624
16
13.5777
12.5611
11.6523
10.8378
10.1059
9.4466
8.8514
8.3126
7.8237
7.3792
6.9740
6.6039
17
14.2918
13.1661
12.1657
11.2741
10.4773
9.7632
9.1216
8.5436
8.0216
7.5488
7.1196
6.7291
18
14.9920
13.7535
12.6593
11.6896
10.8276
10.0591
9.37 19
8.7556
8.2014
7.7016
7.2497
6.8399
19
15.6784
14.3238
13.1339
12.0853
11.1581
10.3356
9.6036
8.9501
8.3649
7.8393
7.3658
6.9380
20
16.3514
14.8775
13.5903
12.4622
11.4699
10.5940
9.8181
9.1285
8.5136
7.9633
7.4694
7.0248
25
19.5234
17.4131
15.6221
14.0939
12.7834
11.6536
10.6748
9.8226
9.0770
8.4217
7.8431
7.3300
30
22.3964
19.6004
17.2920
15.3724
13.7648
12.4090
11.2578
10.2737
9.4269
8.6938
8.0552
7.4957
40
27.3554
23.1148
19.7928
17.1591
15.0463
13.3317
11.9246
10.7574
9.7790
8.9511
8.2438
7.6344
50
31.4236
25.7298
21.4822
18.2559
15.7619
13.8007
12.2335
10.9617
9.9148
9.0417
8.3045
7.6752
3.
LO
Transcribed Image Text:TABLE 13-2 Present value of an annuity of $1 Period 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 1 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 2 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 4 3.8077 3.7171 3.6299 3.5459 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 4.7134 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 7 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 8. 7.3255 7.0197 6.7327 6.4632 6.2098 5.97 13 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 10 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 11 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052 6.4951 6.2065 5.9377 5.6869 12 10.5753 9.9540 9.3851 8.8632 8.3838 7.9427 7.5361 7.1607 6.8137 6.4924 6.1944 5.9176 13 11.3483 10.6350 9.9856 9.3936 8.8527 8.3576 7.9038 7.4869 7.1034 6.7499 6.4235 6.1218 14 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862 7.3667 6.9819 6.6282 6.3025 15 12.8492 11.9379 11.1184 10.3796 9.7122 9.1079 8.5595 8.0607 7.6061 7.1909 6.8109 6.4624 16 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126 7.8237 7.3792 6.9740 6.6039 17 14.2918 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436 8.0216 7.5488 7.1196 6.7291 18 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.37 19 8.7556 8.2014 7.7016 7.2497 6.8399 19 15.6784 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501 8.3649 7.8393 7.3658 6.9380 20 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285 8.5136 7.9633 7.4694 7.0248 25 19.5234 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226 9.0770 8.4217 7.8431 7.3300 30 22.3964 19.6004 17.2920 15.3724 13.7648 12.4090 11.2578 10.2737 9.4269 8.6938 8.0552 7.4957 40 27.3554 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574 9.7790 8.9511 8.2438 7.6344 50 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617 9.9148 9.0417 8.3045 7.6752 3. LO
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