1. Calculate the present value of each of the alternatives below, if the discount rate is 12%.
a. $45,000 today in one lump sum.
b. $70,000 paid to you in seven equal payments of $10,000 each at the end of each of the next seven years.
c. $80,000 paid in one lump sum 7 years from now.
2. You are negotiating for the terms of a legal settlement, and your opponent’s attorney has presented you with the following alternative settlement alternatives:
a. $38,000 today in one lump sum.
b. $50,000 to be paid to you in five equal payments of $10,000 at the end of each of the next five years.
c. If your discount rate is 10%, what is the present value of each of the alternatives and which alternative would you choose, and why?