A Cash-Strapped Young Professional Offers to Buy Your Car with Four

question 33

Multiple Choice

A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning two years from today.Assuming you're indifferent to cash versus credit, that you can invest at 10 percent, and that you want to receive $9,000 for the car, should you accept?

• A)Yes; present value is $9,510
• B)Yes; present value is $11,372
• C)No; present value is $8,645
• D)No; present value is $7,461 PV = $3,000 [1/.1-1/(.1 (1.1)⁴)]/1.1
• = $3,000 [10-6.8301]/1.1
• = $3,000 [3.1699]/1.1
• = $9,509.60/1.1

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