A woman can sell her computer graphics company for $900,000 cash or for $100,000 plus $65,000 at the end of each year for 4 years. (a) Find the present value of the annuity that is offered if money is worth 7% compounded
Annually. (b) If she takes the $900,000, spends $100,000 of it, and invests the rest in a 4-year annuity at 7%
Compounded annually, what size annuity payment will she receive at the end of each year? (c) Which is better,
Taking the $100,000 and the annuity or taking the cash settlement?
A) (a)

\$ 217,967.04

;
(b)

\$ 206,659.68

;
(c)

\$ 100,000

plus the annuity has a smaller present value than

\$ 900,000

. She should take the cash settlemen
B) (a)

\$ 330,253.10

;
(b)

\$ 295,228.12

;
(c)

\$ 100,000

plus the annuity has a larger present value than

\$ 900,000

. She should take

\$ 100,000

plus the annuity.
C) (a)

\$ 297,227.79

;
(b)

\$ 265,705.31

;
(c)

\$ 100,000

plus the annuity has a larger present value than

\$ 900,000

. She should take

\$ 100,000

plus the annuity.
D) (a)

\$ 220,168.73

;
(b)

\$ 236,182.49

;
(c)

\$ 100,000

plus the annuity has a smaller present value than

\$ 900,000

. She should take the cash settlemen

Provide an Appropriate Response N=CaRt, where 0<R<1\mathrm { N } = \mathrm { Ca } \mathrm { R } ^ { \mathrm { t } } , \text { where } 0 < \mathrm { R } < 1N=CaRt, where 0<R<1

Short Answer

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Provide an Appropriate Response $\mathrm { N } = \mathrm { Ca } \mathrm { R } ^ { \mathrm { t } } , \text { where } 0 < \mathrm { R } < 1$

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