What is the present value of option

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You are the manager of a large corporation. You are asked to select between two different projects that will provide different revenue streams for the company. These are:

Option I: Receive revenue of $1,000,000 per year for six years from T=1 through T=6.

Option II: Receive revenue of $500,000 per year for the first five years (T=1 to T=5) and then a revenue of $1,000,000 per year for the next five years (T=6 to T=10).

a. What is the present value of each option if R=0.08? Which option would you choose?

b. What is the present value of each option if R=0.10? Which option would you choose?

c. What discount rate R will make the present value of both options equal? Hint: use Excel's Data - What If - Goal Seek analysis.

Show all work step by step including cell references for part c!

Reference no: EM132648498

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