In exchange for a $23,000 payment today, a well-known company will allow you to choose one of

Question:

In exchange for a $23,000 payment today, a well-known company will allow you to choose one of the alternatives shown in the following table. Your opportunity cost is 9%.

Alternative ....................................Single amount
A ..............................................$28,500 at end of 3 years
B...............................................$54,000 at end of 9 years
C ..............................................$160,000 at end of 20 years

a. Find the value today of each alternative.
b. Are all the alternatives acceptable? That is, are they worth $23,000 today?
c. Which alternative, if any, will you take?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...

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