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In: Finance

Doug just received a settlement from a lawsuit that pays him $125,000 immediately, followed by amounts...

Doug just received a settlement from a lawsuit that pays him $125,000 immediately, followed by amounts of $125,000 at the end of each year over the next 10 years with one exception – lawyer fees reduce the amount in Year 3 to $75,000. However, the lawsuit allows Doug to receive the equivalent present value today. Using an interest rate of 6.5%, which of the following comes closest to the equivalent present value?

a.

$1,200,000
b.

$ 857,145
c.

$ 898,604
d.

$ 666,666
e.

$ 982,211

Solutions

Expert Solution

Solution :

The equivalent present value of the receipts from the settlement lawsuit is = $ 982,211.32

= $ 982,211 ( when rounded off to the nearest whole number )

The outcome that is closest to the equivalent present value of the receipts from the settlement lawsuit is

Option e. $ 982,211

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 5 months ago
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