Question

Betty Kay has a contract under which she will receive the following payment for the next...

Betty Kay has a contract under which she will receive the following payment for the next 5 years: $1,000, $2,000, $3,000, $4,000 and $5,000. She will then receive an annuity of $8,500 a year for the end of the 6th through the end of the 15th year. She is offered $30,000 to cancel the contract. If the payments are discounted at 14 percent should she cancel the contract? Show all workings

Homework Answers

Answer #1

Solution :-

Present Value of Future Receipts = $32,433.45

Offered Contract Price = $30,000

As Offered Price is less than the Present Value of Future Receipts

So no need to cancel a contract

If there is any doubt please ask in comments

Thank you please rate

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