Which of the following has the highest present value?

Question

Quizplus · Accepted Answer

To calculate the present value of each option, we can use the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the cost of capital, and n is the number of years.

Option A: PV = 150 / (1 + 0.12)^4 = €85.45
Option B: PV = 150 / (1 + 0.12)^7 = €68.62
Option C: PV = 150 / (1 + 0.08)^4 = €110.74
Option D: PV = 150 / (1 + 0.08)^7 = €92.61

Out of the four options, option C has the highest present value of €110.74. This is because it has the shortest time period and the lowest cost of capital, which leads to a smaller discount factor when calculating the present value.

Which of the Following Has the Highest Present Value