Question

carrie tune will receive $30,250 for the next 12 years as a payment for a new song she has written. use appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

A. what is the present value of these payments if the discount rate is 11 percent? (round to 2 decimal places)?

B. should she be willing to sell out her future rights now for $190,000?

Answer 1

a)

To calculate the PV, we will use a BA 2 plus financial calculator:

N(Number of years) = 12

PMT(Payment received per period) = $30,250

I/Y(Discount rate) = 11%

CMPT PV

PV = $196,393.77

OR, calculating using the formula:

PV =  [$30,250/((1.11^1)] + [$30,250/((1.11^2)] + [$30,250/((1.11^3)] + [$30,250/((1.11^4)] + [$30,250/((1.11^5)] + [$30,250/((1.11^6)] + [$30,250/((1.11^7)] + [$30,250/((1.11^8)] + [$30,250/((1.11^9)] + [$30,250/((1.11^10)] + [$30,250/((1.11^11)] + [$30,250/((1.11^12)]

PV = $196,393.77

b)

She should not be willing to sell out her future rights now for $190,000 as it is less than the PV of all the cash flows.