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
