BUSI 320 Comprehensive Problem 3

Use what you have learned about the time value of money to analyze each of the following decisions:

Decision #1: Which set of Cash Flows is worth more now?

Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:

Option A: Receive a one-time gift of 10,000 today.

Option B: Receive a 1600 gift each year for the next 10 years. The first 1600 would be

 received 1 year from today.    

Option C: Receive a one-time gift of 20,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 4% annually for the next 10 years. Which of these options does financial theory suggest you should...