Following an enormous oil spill in 1989, Exoff Oil has an insurance liability of $577 million...

Following an enormous oil spill in 1989, Exoff Oil has an insurance liability of $577 million that must be paid in 15 years. To determine the firm's share price, many financial commentators believe it is important to think of the liability in today's value. What is the present value of the liability today assuming a discount rate is 7 percent? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89)

Expert Solution

Insurance liability in year 15 =577000000
Rate =7%
Number of Years =15
present value of the liability today =FV in year 15/(1+r)^n =577000000/(1+7%)^15 =209131353.33

jeff jeffy answered 2 years ago

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