A Dentist Can Sell His Practice for $1,100,000 Cash or for $250,000

question 235

Multiple Choice

A dentist can sell his practice for $1,100,000 cash or for $250,000 plus $270,000 at the end of each year for 4 years. (a) Find the present value of the annuity that is offered if money is worth 8% compounded annually. (b) If
She takes the $1,100,000, spends $250,000 of it, and invests the rest in a 4-year annuity at 8% compounded
Annually, what size annuity payment will she receive at the end of each year? (c) Which is better, taking the
$250,000 and the annuity or taking the cash settlement?

• A) (a) \(\$ 581,278.26\);
• (b) \(\$ 241,234.72\);
• (c) \(\$ 250,000\) plus the annuity has a smaller present value than \(\$ 1,100,000\). She should take the cash settleme
• B) (a) \(\$ 992,644.41\);
• (b) \(\$ 253,613.48\);
• (c) \(\$ 250,000\) plus the annuity has a larger present value than \(\$ 1,100,000\). She should take \(\$ 250,000\) plus the i
• C) (a) \(\$ 894,274.25\);
• (b) \(\$ 256,632.68\);
• (c) \(\$ 250,000\) plus the annuity has a larger present value than \(\$ 1,100,000\). She should take \(\$ 250,000\) plus the i
• D) (a) \(\$ 697,533.91\);
• (b) \(\$ 255,726.92\);
• (c) \(\$ 250,000\) plus the annuity has a smaller present value than \(\$ 1,100,000\). She should take the \(\$ 250,000\) plu: annuity. She should take the cash settlement. .

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