Question

Civil engineering consulting fi rms that provide services to outlying communities are vulnerable to a number of factors that affect the fi nancial condition of the communities, such as bond issues and real estate developments. A small consulting fi rm entered into a fi xed-price contract with a large developer, resulting in a stable income of $260,000 per year in years 1 through 3. At the end of that time, a mild recession slowed the development, so the parties signed another contract for $190,000 per year for 2 more years. Determine the present worth of the two contracts at an interest rate of 10% per year.

Answer 1

Answer:

$894,336

Explanation:

The computation of the present worth of two contracts is shown below:

= (Stable income × PVIFA at 3 years for 10%) + (Signed amount × PVIFA at 2 years for 10%) × PVF at 3 years for 10%

= ($260,000 × 2.4869 ) + ($190,000 × 1.7355 ) × 0.751314801

= $646,594 + $329,745  × 0.751314801

= $894,336

Refer to the PVIFA table and the discount factor table so that the correct amount could come