You have some property for sale and have received two offers.The ﬁrst offer is for €189,000 today in cash.The second offer is the payment of €100,000 today and an additional €100,000 two years from today.If the applicable discount rate is 8.75%, which offer should you accept and why?

Question

Quizplus · Accepted Answer

EThe net present value (NPV) of the second offer needs to be calculated to compare it with the first offer. The NPV of the second offer, considering a discount rate of 8.75%, is calculated as follows: $NPV = €100,000 + \frac{€100,000}{(1 + 0.0875)^2}$. This calculation results in an NPV of approximately €194,555.42 for the second offer, which is higher than the €189,000 offered today. Therefore, choices A and E are correct because the second offer has a higher net present value (E), but the statement in A is incorrect based on the calculation.

You Have Some Property for Sale and Have Received Two