Reference no: EM132957064

Problem 1: Your not-for-profit enterprise needs to acquire use of a building for the next 5 years for your new pharmacy. You have a choice of paying $120,000 today or paying $28,000 at the end of each year for the next 5 years. Which alternative would you prefer if the appropriate discount rate is 8% per year?

1) Pay the $28,000 per year annuity because it is an annuity rather than a lump sum

2) Pay $120,000 today because a bird-in-the-hand is worth two-in-the-bush

3) Pay the $28,000 per year annuity because $28,000 is less than $120,000

4) Pay $120,000 today because $120,000 is less than (5)*($28,000) = $140,000

5) Pay the $28,000 per year annuity because its present value is less than $120,000