You Can Receive $10,000 Today or $3,000 Per Year at the End

question 18

Multiple Choice

You can receive $10,000 today or $3,000 per year at the end of each year for the next five years.If the required rate of return is 10%,what option should be selected? (The present value of an ordinary annuity of one at 10% for five periods is 3.7908.The present value of one at 10% for five periods is 0.6209.)

• A) Receive $10,000 today.
• B) Receive $3,000 per year for the next five years.
• C) The results are the same for both options.
• D) Neither option is desirable.

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Definitions:

Cost of Borrowing

The total charges, including interest and any other fees, that a borrower pays to secure and use borrowed money.

Acid-Test Ratio

A financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets.

Working Capital

Current assets less current liabilities.

Current Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets.