Which of the following has the highest net present value if the discount rate is 10%?
A) $1,000 now
B) $1,100 due in 1 year
C) $1,210 due in 2 years
D) They are all equal in net present value

Question

Quizplus · Accepted Answer

The net present value (NPV) of each option is equal when discounted at a 10% rate. Option A is already in present value terms. Options B and C, when discounted back to present value at a 10% rate, also equal $1,000. This is because the future payments are exactly 10% higher each year, which exactly offsets the 10% discount rate.

Which of the Following Has the Highest Net Present Value