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As a result of your prowess in identifying how many rolls of toilet

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As a result of your prowess in identifying how many rolls of
toilet paper a typical American family keeps on hand, you
win the opportunity to choose one of the following: $1,800
today, $8,000 in 11 years, or $26,000 in 27 years.
Assuming that you can earn 16 percent on your money,
which should you choose?
(A) If you are offered $8,000 in 11 years and you can ear
12% on your money, what is the present value of $8,000?
(B) If you are offered $26,000 in 27 years and you can
earn 12 percent on your money, what is the present value
of $26,000?
(C) Which offer should you choose?
Solution
Options
year
cashflow
pv factor @ 16%
pv
Option 1
0
1800
1
1800

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1
0.862068966
2
0.743162901
3
0.640657674
4
0.552291098
5
0.476113015
6
0.410442255
7
0.35382953
8
0.305025457
9
0.26295298
10
0.226683603
Option 2
11
8000
0.1954169
1563.335

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As a result of your prowess in identifying how many rolls of toilet paper a typical American family keeps on hand, you win the opportunity to choose one of the following: $1,800 today, $8,000 in 11 years, or $26,000 in 27 years. Assuming that you can earn 16 percent on your money, which should you choose? (A) If you are offered $8,000 in 11 years and you can ear 12% on your money, what is the present value of $8,000? (B) If you are offered $26,000 in 27 years and you can earn 12 percent on your money, what is the present value of $26,000? (C) Which offer should you choose? Solution Options year cashflow pv factor @ 16% pv Option 1 0 1800 1 1800 1 0.862068966 2 0.743162901 3 0.640657674 4 0.552291098 5 0.476113015 6 0.410442255 7 0.35382953 8 0.305025457 9 0.26295298 10 0.226683603 Option 2 11 8000 0.1954169 1563.335 12 0.168462844 13 0.14522659 14 0.125195336 15 0.107927014 16 0.093040529 17 0.080207353 18 0.06914427 19 0.059607129 20 0.051385456 21 0.044297807 22 0.038187765 23 0.032920487 24 0.02837973 25 0.024465284 26 0.021090762 Option 3 27 26000 0.018181692 472.724 Option 1 i.e. $1,800 today is better Options year cashflow pv factor @ 16% pv Option 1 0 1800 1 1800 1 0.892857143 2 0.797193878 3 0.711780248 4 0.635518078 5 0.567426856 6 0.506631121 7 0.452349215 8 0.403883228 9 0.360610025 10 0.321973237 Option 2 11 8000 0.287476104 2299.809 12 0.256675093 13 0.22917419 14 0.204619813 15 0.182696261 16 0.163121662 17 0.145644341 18 0.13003959 19 0.116106777 20 ...
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