Reference no: EM13658691

Value of a single amount versus a mixed stream Gina Vitale has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay $24,000 at the closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next 5 years. Because Gina doesn't really need the money today, she plans to let it accumulate in an account that earns 7% annual interest. Given her desire to buy a house at the end of 5 years after closing
on the sale of the lot, she decides to choose the payment alternative-$24,000 single amount or the mixed stream of payments in the following table-that provides the higher future value at the end of 5 years. Which alternative will she choose?
Mixed stream
Beginning of year Cash flow
1 $ 2,000
2 4,000
3 6,000
4 8,000
5 10,000