Answered: You are offered $110,000 today or…

You are offered $110,000 today or $400,000 in 14 years. Assuming that you can earn 11 percent on your money, which should you choose?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9EA: If you invest $12,000 today, how much will you have in (for further Instructions on future value in...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

(Related to Checkpoint 5.4) (Present-value comparison) You are offered

$110,000

today or

$400,000

years. Assuming that you can earn

percent on your money, which should you choose?

If you are offered

$400,000

years and you can earn

percent on your money, what is the present value of

$400,000?

$nothing

(Round to the nearest cent.)

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