Your rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years. Assuming you could earn 1 l percent annually, which alternative should you choose? If you could earn 12 nt annually would you still choose the same alternative? Solution: (first alternative) Present value of $10,000 received now $10,000 (second alternative) Present value of annuity of $2,000 for eight years Appendix d PVA EAX PVIE =$2, 000X PVIFA (11%,8 years $2000x5.146 $10,292 (third alternative) Present value of $24,000 received in eight years dix B P=FⅤ X PIE =$24,000 X PVIF(11%,8 years) =$24000x.434 $10,416 Select $24,000 to be received in eight years by The McGraw-Hill Compa -316Copyright © 2005 by The McGraw-Hill Companies, Inc. S-316 9-22. Your rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternative? Solution: (first alternative) Present value of $10,000 received now: $10,000 (second alternative) Present value of annuity of $2,000 for eight years: Appendix D PVA = A x PVIFA = $2,000 x PVIFA (11%, 8 years) = $2,000 x 5.146 = $10,292 (third alternative) Present value of $24,000 received in eight years: Appendix B PV = FV x PVIF = $24,000 x PVIF (11%, 8 years) = $24,000 x .434 = $10,416 Select $24,000 to be received in eight years