The present value of his consulting contract is $502,898.46.
Annual payment = $61,000
Opportunity cost = 8%
Number of payments = 14
Present value of payments = $61,000/1.08 + $61,000/ + ... + $61,000/ + $61,000/
Present value of payments = $61,000 * (1 - ) / 0.08
Present value of payments = $61,000 * 8.244237
Present value of payments = $502,898.46
Therefore, the Present value of payments is $502,898.46.
The present value of an annuity is the current value of future payments from an annuity, given a specified rate of return, or discount rate. The higher the discount rate, the lower the present value of the annuity.
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