You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $39,000, $43,000, $88,000, and $132,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 6.1 percent, what is the value of the settlement offer today?

Question

Business

Marissa Elliott

12 January, 18:19

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $39,000, $43,000, $88,000, and $132,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 6.1 percent, what is the value of the settlement offer today?

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Dalia Mclean · Answer 1

Present Value = $252,796.04

Explanation:

Giving the following information:

Cash flow 1 = 39,000

Year 2 = 43,000

Year 3 = 88,000

Year 4 = 132,000

The discount rate is 6.1%

To calculate the present value of the settlement, we need to use the following formula for each cash flow:

PV = FV / (1+i) ^n

PV = 39,000/1.061 + 43,000/1.061^2 + 88,000/1.061^3 + 132,000/1.061^4

PV = $252,796.04