Esther, Vida, and Clair were asked to consider two different cash flows: GH¢1000 that they could receive today and GH¢3000 that would be received 3 years from today. Esther wanted the GH¢1000 today, Vida chose to collect GH¢3000 in 3 years, and Clair was indifferent between these two options. Which of the three women made the right choice? Explain

Esther made the right option which gives her maximum value at the end of 3 years than Vida and Clair.

Step-by-step explanation:

The life is all about making the right choices. Esther has made a decision to collect GH¢1000 now. To calculate future value of Esther choice at the end of 3 year we will use formula below,

FV = PV

discount factor at year 3 t 10% is 0.751

FV = 1000 (0.751) / (1.1)3

FV = GH¢2487.

Vidha choose to collect GH¢3000 at end of 3 year, the present value of GH¢3000 at 10% discount rate will be;

PV = FV

PV = 3000 (0.751)

PV = GH¢2253.

Clair is indifferent from the choices given but this is also not a smart choice.

Esther has made the right choice among the three women and she gets maximum value of GH¢2487.