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You have the choice of receiving $80,000 now or $32,000 now and another $56,000 four years from now
You have the choice of receiving $80,000 now or $32,000 now and another $56,000 four years from now. In terms of today's dollar, which choice is better and by how much? Money is worth 4.5% compounded annually. Which choice is better? O A. The choice of $32,000 now and $56,000 in four years is better OB. The choice of $80,000 now is better. OC. They are equal in value. The better choice is greater than the alternative choice by in terms of today's dollar. (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)
Expert Solution
The present value is computed as follows:
= Future value / (1 + r)n
The present value of $ 80,000 is $ 80,000, since the same is received today.
The present value of $ 32,000 now and $ 56,000 in four years is computed as follows:
= $ 32,000 + $ 56,000 / 1.0454
= $ 78,959.43524
So, the choice of $ 80,000 now is better and the same is better by:
= $ 80,000 - $ 78,959.43524
= $ 1,040.56
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