The Hudson family wants to start a wooden furniture business. In addition to having a storefront, they would like to allow onlin
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Answer:
The payment X that will be made two years from now is approx $17940.
Explanation:
The present value of the investment is $56000. To calculate the value of X, we first need to calculate the present value of the fixed annual payments made to XYZ.
The fixed annual payments made to XYZ is an annuity as the payments is fixed, is paid out after equal intervals of time and for a limited time period.
To calculate the present value of annuity, we will use the attached formula.
PV of annuity = 12000 * [(1 - (1+0.132)^-5) / 0.132]
PV of annuity = $42001.62278 rounded off to $42001.62 or we can round it off to be approx $42000
If the present value of fixed payments is $42000, the present value of X should be,
Present value of X = 56000 - 42000 = $14000
To calculate the value of X that will be paid in 2 years, we will calculate the future value of $14000 after 2 years. The formula for future value is as follows,
FV = PV * (1+r)^t
Where,
- r is the rate of return
- t is the time periods
FV of X= 14000 * (1+0.132)^2
FV of X = $17939.936 rounded off to approx $17940
So, the payment X that will be made two years from now is approx $17940.
