Question
In: Economics
Civil Engineering consulting firms that provide services to outlying communities are vulnerable to a number of...
Civil Engineering consulting firms that provide services to outlying communities are vulnerable to a number of factors that affect the financial condition of the communities, such as bond issues, real estate developments, etc. A small consulting firm entered into a fixed-price contract with a spec home builder, resulting in a stable income of $940000 per year in years 1 through 4. At the end of that time, a mild recession slowed the development, so the parties signed another contract for $150,000 per year for two more years. Determine the present worth of the two contracts at an interest rate of 10% per year.
Solutions
Expert Solution
The present worth of the two contracts together is $3,157,482.80
The formula used, calculation and reasoning ae given in he following attached image file :
Since, the annual incom changes after the 4th year, the formula for calculating Present Worth of an Annuity could not be used. The easier formula for calculating present worth through Discounting is used for each period and then the present worth of all the periods are added together.
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