Based on the options given of different cashflows, the offer you should accept is Birr 10,000 in 12 year.
Which offer should you accept?
Find the present values of each offer:
Offer 1:
= Birr 1,000
Offer 2:
= 10,000 / 1.11¹²
= Birr 2,858.41
Offer 3:
= 25,000 / 1.11²⁵
= Birr 1,840.20
The offer with the highest present value is the second offer of Birr 10,000 in 12 years.
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