BarbaraThomas has a $2,800 overdue debt for medical books and supplies at Joe's Bookstore. She has only $910in her checking account and doesn't want her parents to know about this debt. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now:

1.Pay $910now and $2,300when she completes her residency,2years from today.2.Pay $3,710one year after completion of residency,3years from today.

Assuming that the cost of money is the only factor inBarbara's decision and that the cost of money to her is6%, which alternative should she choose?

Present Value of Alternative 1

Present Value of Alternative 2