Answer to Question #147223 in Economics of Enterprise for Muhammad Anwer

Question #147223
Khurram Ali is negotiating his employment contract. His opportunity cost is 15%. He has been offered two possible 4-year contracts. Payments are in Pakistani rupees and are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:

Contract Year 1 Year 2 Year 3 Year 4
Contract 1 4 Million 4 Million 4 Million 4 Million
Contract 2 10 Million 1 Million 1 Million 1 Million

As his financial adviser, which contract would you recommend that he accept?
1
Expert's answer
2020-12-01T10:15:43-0500

NPV ==4/1.15+4/1.152^2 +4/1.153^3 +4/1.154^4 == 11.42


NPV== 10/1.15+1/1.152^2 +1/1.153^3 +1/1.154^4 == 10.68

As a financial advisor I Will tell him to go for the first contract.


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