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On the present value basis which alternative is preferable

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Question - Carol Thomas has a $2,800 overdue debt for medical books and supplies at Joe's Bookstore. She has only $980 in her checking account and doesn't want her parents to know about this debt. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now:

1. Pay $980 now and $2,350 when she completes her residency, 2 years from today.2.Pay $3,780 one year after completion of residency, 3 years from today.

Assuming that the cost of money is the only factor in Carol's decision and that the cost of money to her is 8%, which alternative should she choose?

On the present value basis, which alternative is preferable?

Reference no: EM132515166

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