An Obligation Can Be Settled by Making a Payment of $16

question 68

Essay

An obligation can be settled by making a payment of $16 000 now and a final payment of $30 000 in 3 years. Alternatively, the obligation can be settled by payments of $2500 at the end of every three months for four years. Interest is 12% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.

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Definitions:

Virginia Plan

Virginia’s delegation to the Constitutional Convention’s plan for a strong central government and a two-house legislature apportioned by population.

Two-House Legislature

A bicameral legislative system consisting of two separate chambers or houses, typically a lower house and an upper house, for the purpose of law-making.

Population

The number of individuals living in a specific area, region, or country at a given time.

Constitutional Convention

A formal assembly convened with the purpose of drafting, amending, or revising a constitution, such as the 1787 convention that drafted the Constitution of the United States.