Explanation Present value: It is the amount received at given discounting rate on present date of Present money. It means investment made in Present at given interest rate will be received in present. The present value excludes the interest earned over the investment period. The given options can be sorted as follows: Option 1: Amount of $14,500,000 is received after six years from now. Option 2: Amount of $2,200,000 is received at the end of each year for next six years. Option 3: Amount of $12,500,000 is received at the end of fourth year. Statement showing calculation for present value: Calculation for present value (Amount in $) Amount (a) Option PV factor at interest rate 6% (b) Present value amount ( a × b ) 14,500,000 1 0

5th Edition

ISBN: 9780134128528

Author: Karen W. Braun, Wendy M. Tietz

Publisher: PEARSON

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Chapter 12, Problem 12.25AE

To determine

The present value of each payout option.

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The present value of each payout option.

Solution Summary: The author explains the present value of each payout option, which is the amount received at given discounting rate on present date of money.

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The present value of each payout option.

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Chapter 12 Solutions