Proposal 1: Pay $300,000 a year for the next 20yrs, and $500,000 a year for the remaining 20yrs

Proposal 2: Pay a lump sum of $5 million today

Proposal 3: Pay $50,000 a year for the next 40yrs, and a guarantee final payment of $75 million at the end of 40yrs.

a. Using a current long-term interest rate of 1.75%, recommend a proposal.Justify choice of discount rate.

b. Assume a discount rate of 11%. Which of the 3 alternatives provides the highest present value?

c. Explain why the change in outcome takes place between part a and part b.