+598 In negotiating a contract for your business, you have to decide between recieving $50,000 now or $20,000 now and $35,000 three years from now. In terms of today's dollar, which choice is better and by how much? Money is worth 4.25% compunded annually.
Any help would be great thanks, Need steps
+129850 50000(1 +.0425)^3 = $56,649.77
20000( 1 + .0425)^3 = $ 22659.91 + $35000 = $ 57,659.91
The second is better by $ [57659.91 - 56649.77] = $1010.14
CPhill: In this problem, you compare the PV of amounts as of today, especially when he/she says "in term of today's dollars".
So, the accurate way of doing it, is to discount the $35,000, or find its PV at the given rate and then add it to the $20,000, and compare the total to $50,000 offered today: thus the PV of $35,000 is $30,891.56 + $20,000=$50,891.56.
So, the correct difference is $891.56.
