1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Hitman42 [59]
3 years ago
11

Lester's just signed a contract that will provide the firm with annual cash inflows of $28,000, $35,000, and $42,000 over the ne

xt three years with the first payment of $28,000 occurring one year from today. What is this contract worth today at a discount rate of 7.25%?
Business
1 answer:
Free_Kalibri [48]3 years ago
5 0

Answer:

$64,474.20

Explanation:

As for the information provided,

discount rate = 7.25%

First payment will be made at the end of year 1

Discounting factor = \frac{1}{(1+0.0725)^1} = 0.9324

Thus, current value of payment = 28,000 \times 0.9324 = $26,107.20

Discounting factor for receipts =

Year 1 = \frac{1}{(1+0.0725)^1} = 0.9324 = $28,000 \times 0.9324 = 26,107.20

Year 2 = \frac{1}{(1+0.0725)^2} = 0.8694 = 35,000 \times 0.8694 = 30,429

Year 3 = \frac{1}{(1+ 0.0725)^3} = 0.8106 = 42,000 \times 0.8106 = 34,045.20

Therefore, value of contract today = - $26,107.20 + $26,107.20 + $30,429.0 + $34,045.20 = $64,474.20

You might be interested in
The capitalized cost of any investment may be determined using the equation P = A/i where P is the capitalized cost, A is the an
statuscvo [17]

Answer: True

Explanation: The matching principle is used to compute capitalized costs by companies and it records expenses in the same period as the related revenues by matching the cost of an asset to the time periods in which it is used, and is therefore generating revenue.

Capitalized cost is also given as the present worth of cash flows which go on for an infinite period of time. In other words, the worth of cash flows does not leave the company when items are purchased. This is because the monetary value  is retained in the form of a fixed or intangible asset.

The capitalized cost of any investment can be determined using the equation, P = A/i.  Where P is the capitalized cost, A is the annual amount and i is the interest rate.

7 0
3 years ago
The assumption that in the absence of contrary information a business entity will continue indefinitely is the:
const2013 [10]

Answer:

(D) Going concern assumption.

8 0
3 years ago
The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain. s
Ira Lisetskai [31]
The value of what businesses provide to other businesses is captured in the final products at the end of the production chain. During the production chain the product goes through various steps to reach its end result. Each step in the chain adds more value to the product. Once it reaches the end of the chain the true test is the value it provides to business that ends up using the item. An example of this is a home being built. During each stage of the home building process the home is getting closer to its true test, when the owners move in. From the floor being poured to the walls going up, each step makes the house closer to becoming someones home. 
8 0
3 years ago
Commercial banks are funded through which of the following?
Artemon [7]
A. Commercial banks lend mi way to consumers in the form of car loans, mortgages and personal loans. The money distributed for these loans comes from deposits of other bank customers.
3 0
3 years ago
Read 2 more answers
Tax a tax adjustment must be made in determining the cost of
RUDIKE [14]
This isn't even a question
4 0
3 years ago
Other questions:
  • Exercise 21.2 you are the dba for the veryfine toy company and create a relation called employees with fields ename, dept, and s
    13·1 answer
  • Describe external resources useful to entrepreneurs during concept development
    7·1 answer
  • If you are a buyer with a buyer value of $6.50, would you be willing to buy a book for $6.25?
    6·1 answer
  • This problem has been solved! See the answer In September of 1998, your father purchased a Michael Jordan basketball card for $0
    5·1 answer
  • Discuss social responsibility and ethics?<br><br>​
    7·1 answer
  • Describe at least three other investments you want to make with your income either now or someday in the future. Explain why you
    15·2 answers
  • Read Case Study 5:2 Gas or Grouse? in Chapter 5 of your textbook Business Ethics Concepts &amp; Cases (8th Edition) by Manuel G.
    9·1 answer
  • If beginning capital was $110,000, ending capital was $95,000, and the owner's withdrawals were $10,000, the amount of net incom
    11·1 answer
  • The theory of constraints is a manufacturing strategy that focuses on reducing the influence of bottlenecks on a process. True F
    8·1 answer
  • The total factory overhead for Landen Company is budgeted for the year at $675,000. Landen manufactures two drapery products: sh
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!