Green Media just bought supplies from Diamond Leisure. There are 3 payment options. Option A  involves paying $45,000 in 3 years. Option B involves paying $60,268 in 8 years. Option C involves paying $77,452 in 12 years. The discount rate is 6.13 percent. What is he present value of the cash flow associated with the option most preferred by Green Media? Be careful with the sign of your answer. Rount to the nearest dollar.

To determine the present value (PV) of each payment option, we use the present value formula for a single cash flow:

\[
PV = \frac{FV}{(1 + r)^n}
\]

where:
- $FV$ is the future value of the payment.
- $r$ is the discount rate (6.13% or 0.0613).
- $n$ is the number of years until the payment is made.

### Calculate the Present Value for Each Option

**Option A**: Payment of $45,000 in 3 years
\[
PV_A = \frac{45,000}{(1 + 0.0613)^3}
\]

**Option B**: Payment of $60,268 in 8 years
\[
PV_B = \frac{60,268}{(1 + 0.0613)^8}
\]

**Option C**: Payment of $77,452 in 12 years
\[
PV_C = \frac{77,452}{(1 + 0.0613)^12}
\]

Let's calculate the present values for these options.The present values of the payment options are as follows:

- **Option A**: $37,644
- **Option B**: $37,444
- **Option C**: $37,929

The highest present value is associated with **Option C** ($37,929). However, since we're evaluating from the perspective of Green Media (who would prefer a lower present value to minimize costs), the **most preferred option** is **Option B** with a present value of **$37,444**.

Would you like any further details or have any questions?

Here are 5 related questions for further exploration:

1. How would the present value change if the discount rate increased to 8%?
2. What is the significance of a lower present value in financial decisions?
3. How can Green Media negotiate better payment terms based on this analysis?
4. How does the time value of money affect long-term financial decisions?
5. Can we determine the effective interest rate if the payment terms were reversed?

**Tip:** Always consider the impact of inflation when analyzing future payments.

Green Media just bought supplies from Diamond Leisure. There are 3 payment options. Option A involves paying $45,000 in 3 years. Option B involves paying $60,268 in 8 years. Option C involves paying $77,452 in 12 years. The discount rate is 6.13 percent. What is the present value of the cash flow associated with the option most preferred by Green Media? Be careful with the sign of your answer. Round to the nearest dollar.

Discover how to calculate the present value of three different payment options using a 6.13% discount rate. This example involves a detailed step-by-step solution for finance students or professionals looking to understand cash flow decisions. Suitable for college-level business or finance studies.

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