You Have Some Property for Sale and Have Received Two

question 1

Multiple Choice

You have some property for sale and have received two offers.The first offer is for €189,000 today in cash.The second offer is the payment of €100,000 today and an additional €100,000 two years from today.If the applicable discount rate is 8.75%, which offer should you accept and why?

• A)You should accept the €189,000 today because it has the higher net present value.
• B)You should accept the €189,000 today because it has the lower future value.
• C)You should accept the second offer because you will receive €200,000 total.
• D)You should accept the second offer because you will receive an extra €11,000.
• E)You should accept the second offer because it has a present value of €194,555.42.

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Definitions:

Scarce Goods

Products or resources that are limited in availability and cannot meet all the demands of consumers.

Comparative Advantage

The ability of a country or firm to produce a specific good or service at a lower opportunity cost than its competitors.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or choice.

Specialize

The process of concentrating on and becoming expert in a particular subject or skill, often used in the context of labor and production.