St trucking just signed a $3.8 million contract. The contract calls for a payment of $1.1...

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 from today, and $1.4 million two years from today. What is the contract worth today at a discount rate of 8.0 percent? Please show how to work this problem in excel.

Expert Solution

Today's worth of the contract means present value of future payment.

Year	Cash flow	PV factor	PV of cash flow
a	b	c	*d=bc**
0	$ 11,00,000	1	$ 11,00,000
1	$ 13,00,000	0.925926	$ 12,03,704
2	$ 14,00,000	0.857339	$ 12,00,274
Present Value			$ 35,03,978

Worth of the contract= $3503978.05

Working Note:

PV Factor

Year 0	=1/1.08^0	=1
Year 1	=1/1.08^1	=0.925926
Year 2	=1/1.08^2	=0.857339


*Please rate.*

jeff jeffy answered 4 months ago

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