P8-6 3 (L earn i ng Obj ec tiv e 6: Calc u la t e p resen t v al u es o f co mp e ti ng i n v es tm

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P8-63  (Learning Objective 6: Calculate present values of competing investments)  Which option is better: receive $100,000 now or $20,000, $25,000, $30,000, $25,000, and $20,000, respectively, over the next five years?

▶ Requirements

1. Assuming a 5% interest rate, which investment opportunity would you choose?

2. If you could earn 10%, would your choice change?

3. What would the cash flow in year 5 have to be in order for you to be indifferent to the two plans?