Assuming an after-tax rate of return of 10%, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year. Use Exhibit 3.1.

Question

Quizplus · Accepted Answer

Using the time value of money formula, we can calculate the present value of the $100 expense in one year:

PV = FV / (1 + r)^n
PV = $100 / (1 + 0.1)^1
PV = $90.91

Since the present value of the $100 expense in one year is greater than the $85 expense today, John should prefer to pay the expense of $85 today. Therefore, the statement is true.

Assuming an After-Tax Rate of Return of 10%, John Should