Ralston Consulting, Inc., has a $24,000 overdue debt with Supplier No. 1. The company is low on cash, with only $6,720 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways: Option 1: Pay $6,720 now and $22,800 when some large projects are finished, two years from today. Option 2: Pay $33,600 three years from today, when even larger projects are finished. Assuming that the only factor in the decision is the cost of money (10%). (Click here to see present value and future value tables) A. Calculate the present value of each option. Round your present value factor to three decimal places and final answer to the nearest dollar. Present value of Option 1 Present value of Option 2 B. Which option should Ralston choose? Option 1
Ralston Consulting, Inc., has a $24,000 overdue debt with Supplier No. 1. The company is low on cash, with only $6,720 in the checking account and does not want to borrow any more cash. Supplier No. 1 agrees to settle the account in one of two ways: Option 1: Pay $6,720 now and $22,800 when some large projects are finished, two years from today. Option 2: Pay $33,600 three years from today, when even larger projects are finished. Assuming that the only factor in the decision is the cost of money (10%). (Click here to see present value and future value tables) A. Calculate the present value of each option. Round your present value factor to three decimal places and final answer to the nearest dollar. Present value of Option 1 Present value of Option 2 B. Which option should Ralston choose? Option 1
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:Ralston Consulting, Inc., has a $24,000 overdue debt with Supplier No. 1. The company is low on cash, with only $6,720 in the checking account and does not want to borrow any more
cash. Supplier No. 1 agrees to settle the account in one of two ways:
Option 1: Pay $6,720 now and $22,800 when some large projects are finished, two years from today.
Option 2: Pay $33,600 three years from today, when even larger projects are finished. Assuming that the only factor in the decision is the cost of money (10%).
(Click here to see present value and future value tables)
A. Calculate the present value of each option. Round your present value factor to three decimal places and final answer to the nearest dollar.
Present value of Option 1
Present value of Option 2
B. Which option should Ralston choose?
Option 1
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