Question

n R&D lab will receive $250,000 when a proposed contract is signed, a $200,000 progress payment at the end of Year 1, and $400,000 when the work is completed at the end of Year 2. What is the present worth of the contract at 15%?

Answer 1

Answer:

$726,370.51

Explanation:

The present value of the contract is the sum of the discounted cash flows.

Present value can be calculated using a financial calculator:

Cash flow in year 0 = $250,000 

Cash flow in year 1 = $200,000 

Cash flow in year 2 = $400,000 

Discount rate = 15%

Present value = $726,370.51

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