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posledela
2 years ago
6

ST Trucking just signed a $3.8 million contract. The contract calls for a payment of $1.1 million today, $1.3 million one year f

rom today, and $1.4 million two years from today. What is this contract worth today at a discount rate of 8.7 percent?
Business
1 answer:
Doss [256]2 years ago
7 0

Answer:

The worth of the contract today = $3,480,817.37

Explanation:

To determine the worth of the contract today,

We will work out the present value of each of the expected future cash cash payment at a discount rate rate of 8.7% and sum them.

The present valus of the payments indicate how much they worth today if the ST Trucking can invest at a rate of 8.7% per annum

This is done as follows:

PV = 1,100,00× (1.087)^(-0)  + (1,300,000 × (1.087)^(-1) + (1400000 ×(1.087)^(-2)

PV = 1,100,000 +  1,195,952.2 +  1,184,865.2

    =  $3,480,817.37

The worth of the contract today = $3,480,817.37

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If the market price is $60, a firm's minimum average total cost is $70, and minimum average variable cost is $50, what should th
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