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PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $150 at the end of each of the next 3 years, $200
PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $150 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $550 at the end of Year 6. a. If other investments of equal risk earn 6% annually, what is its present value? Round your answer to the nearest cent. b. If other investments of equal risk earn 6% annually, what is its future value? Round your answer to the nearest cent. T PV OF CASH FLOW STREAM A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 8%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: 1 Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000 Contract 2 $2,000,000 $3,500,000 $4,500,000 $5,000,000 Contract 3 $7,000,000 $1,000,000 $1,000,000 $1,000,000 As his adviser, which contract would you recommend that he accept? Select the correct answer. O a. Contract 1 gives the quarterback the highest future value; therefore, he should accept Contract 1. O b. Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2. O c. Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1. O d. Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3. O e. Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3
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