Question

In: Finance

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.

Solutions

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=b*c
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.

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