MGT201 GDB No. 1

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GMT - 3 Hours MGT201 GDB No. 1

Post by =**Fairy** = on Thu Apr 21, 2011 1:50 pm

A few days ago, Mr. A has purchased a lottery. Fortunately, he has received a letter from the lottery officials that he has won that lottery. Additionally, it has been mentioned in the letter that he has to choose between one of the two given alternatives as his Prize money:
A:Rs. 4,000 every year for next 10 years or;
B:Rs. 54,000 after 10 years. His opportunity cost is 11%.

required:
Find the value of each alternative. Which alternative is acceptable for Mr. A and why?
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GMT - 3 Hours Re: MGT201 GDB No. 1

Post by =**Fairy** = on Thu Apr 21, 2011 1:51 pm

MGT 201
GDB NO. 1
Idea Solution

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Option A
=4000/1.11+4000/(1.11^2)+4000/(1.11^3)+4000/(1.11^4)+4000/(1.11^5)+4000/(1.11^6)+4000/(1.11^7)+4000/(1.11^Cool+4000/(1.11^9)+4000/(1.11^10)
= 23556.93
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Option B
= 54000/(1.1^10)
= 20819.34
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Option A is Acceptable as it has high Present Value
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GMT - 3 Hours Re: MGT201 GDB No. 1

Post by munaza on Fri Apr 22, 2011 12:19 pm

thanks =**Fairy** =[You must be registered and logged in to see this image.]
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GMT - 3 Hours Re: MGT201 GDB No. 1

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