Question

St trucking just signed a $3.8 million contract. the contract calls for a payment of $1.1 million today, $1.3 million one year from today, and $1.4 million two years from today. what is this contract worth today at a discount rate of 8.7 percent? $3,783,648.48 $3,480,817.37 $2,108,001.32 $3,202,223.89 $3,202,840.91

Answer 1

The answer is $3,480,817.37 The contract is worth $3,480,817.37 today at a discount rate of 8.7 percent.

PV = $1.1M + ($1.3M/1.087) + ($1.4M/1.087 square) = $3,480,817.37