A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay you $650 in three years. Which one of the following is correct if your company earns 10.5% on its
Surplus funds?
A) The company should accept the $650 offer as it pays $150 more.
B) The company should accept the $650 offer as it is worth more today.
C) The company should accept the $650 offer as it is worth $12.42 more today.
D) The company should accept the $500 offer as it is worth $18.24 more today.
E) The company should accept the $500 offer as it is worth $512.42 today.

Question

Quizplus · Accepted Answer

The present value of $650 in three years at 10.5% is less than $500 today, making the $500 offer more valuable.

A Customer Makes Two Offers to Settle a Disputed Account