A Dentist Can Sell His Practice for $1,100,000 Cash or for $250,000

Multiple Choice

A dentist can sell his practice for $1,100,000 cash or for $250,000 plus $270,000 at the end of each year for 4 years. (a) Find the present value of the annuity that is offered if money is worth 8% compounded annually. (b) If
She takes the $1,100,000, spends $250,000 of it, and invests the rest in a 4-year annuity at 8% compounded
Annually, what size annuity payment will she receive at the end of each year? (c) Which is better, taking the
$250,000 and the annuity or taking the cash settlement?

A) (a) $\$ 581,278.26$ ;
(b) $\$ 241,234.72$ ;
(c) $\$ 250,000$ plus the annuity has a smaller present value than $\$ 1,100,000$ . She should take the cash settleme
B) (a) $\$ 992,644.41$ ;
(b) $\$ 253,613.48$ ;
(c) $\$ 250,000$ plus the annuity has a larger present value than $\$ 1,100,000$ . She should take $\$ 250,000$ plus the i
C) (a) $\$ 894,274.25$ ;
(b) $\$ 256,632.68$ ;
(c) $\$ 250,000$ plus the annuity has a larger present value than $\$ 1,100,000$ . She should take $\$ 250,000$ plus the i
D) (a) $\$ 697,533.91$ ;
(b) $\$ 255,726.92$ ;
(c) $\$ 250,000$ plus the annuity has a smaller present value than $\$ 1,100,000$ . She should take the $\$ 250,000$ plu: annuity. She should take the cash settlement. .