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Present value of the second alternative mentioned

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A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump sum of $12 million in Year 0 (the current year), or in parts, in which $7 million can be provided at the end of Year 1, and another $7 million can be provided at the end of Year 2.

  • Describe your answer for each item below in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points:
  • Assuming the opportunity interest rate is 8%, what is the present value of the second alternative mentioned above? Which of the two alternatives should be chosen and why?
  • How would your decision change if the opportunity interest rate is 12%?
  • Provide a description of a scenario where this kind of decision between two types of payment streams applies in the "real-world" business setting.

Reference no: EM132476776

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