Question

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $18,000, $26,500, $46,000, and $69,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 4.3 percent, what is the value of the settlement offer today

Answer 1

Total PV= $140,465.69

Step-by-step explanation:

Giving the following information:

Cash flows:

Cf1= $18,000

Cf2= $26,500

Cf3= $46,000

Cf4= $69,000

The appropriate interest rate is 4.3 percent.

To calculate the present value, we need to apply the following formula on each cash flow:

PV= FV/(1+i)^n

Cf1= 18,000/1.043= 17,257.91

Cf2= 26,500/1.043^2= 24,360

Cf3= 46,000/1.043^3= 40,541.97

Cf4= 69,000/1.043^4= 58,305.81

Total PV= $140,465.69