You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why?

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the second offer, we need to discount the $70,000 payment two years from today to its present value. Using the given discount rate of 11.5 percent, we can calculate the present value of $70,000 as $51,030. We can then calculate the total NPV of the second offer as $35,000 + $51,030 = $86,030. The NPV of the first offer is simply the offer amount of $89,500. Therefore, the second offer has the larger NPV and should be accepted.

You Have Some Property for Sale and Have Received Two