Question

You have just received a judgment in a product liability suit that will pay you $40,000 at the end of each of the next five years. Question: If you can earn interest at a rate of 8% compounded annually, what is the present value of this judgment? Time Value of Money Tables link (will open in a new window)

Select one:

a. $ 234,664

b. $ 18,528

c. $ 159,708

d. $ 200,000

e. $ 58,773

Answer 1

CACLULATION OF THE PRESENT VALUE OF THE JUSDGEMENT
Years	Cash Inflow (Outflow)	PVF of $ 1 @ 8%	Present Value (A XB)
1	$                      40,000	0.92593	$         37,037.04
2	$                      40,000	0.85734	$         34,293.55
3	$                      40,000	0.79383	$         31,753.29
4	$                      40,000	0.73503	$         29,401.19
5	$                      40,000	0.68058	$         27,223.33
			$     1,59,708.40
	Total Net Present Value	$           1,59,708
Answer = Option C = $ 159,708