Should You Prefer to Receive $100,000 Right Now or $10,000

question 86

Multiple Choice

Should you prefer to receive $100,000 right now or $10,000 at the end of each of the next 12 years?

• A) $100,000 now.
• B) $10,000 at the end of each of the next 12 years.
• C) The answer depends on the time value of money.
• D) Either alternative is equally valuable.

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Definitions:

Degree of Total Leverage

The degree of total leverage measures the sensitivity of a company's net income to a change in sales, combining both operating and financial leverage effects.

Fixed Operating Costs

Expenses that remain constant regardless of the amount of output or sales, including rent, wages, and insurance premiums.

Coupon Interest Rate

The annual interest rate paid on a bond, expressed as a percentage of the face value, payable to the bondholder at specified intervals.

Tax Deductible

Expenses that reduce taxable income, as they can be subtracted directly from one's gross income before calculating the tax owed.