Caitlins brotherinlaw has a 1924 Ford Model T car that is wo

Caitlin’s brother-in-law has a 1924 Ford Model T car that is worth $15,000, stored in a barn in Alaska. It increases in value about $500 each year as old Fords become more rare. He is willing to sell it to her today, but it will be three years before she has an opportunity to ship it back to Alabama (at that time, shipping will be free, because her sister is moving a truckload of stuff down from their Alaska farm). When Caitlin gets it here, she plans to sell it right away. If Caitlin’s discount rate is 12%, what is the most she should pay today for the car? This is a present value problem.

Solution

The present value of the car is $ 30000( $15000+1500* (increased of value of car $500/year that is for 3 year)

The present vale of the car @12% discount rate would be = $ 21353.00