Question

The government has imposed a fine on JJ's Place. The fine calls for annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter. The government will earn 5.5 percent on the funds held. How much will the community shelter receive four years from today?

a.$328,572
b.$277,491
c.$263,025
d.$236,875
e.$285,737

Answer 1

b.$277,491

Step-by-step explanation:

The computation of the future value is shown below:

Annual payments Discount factor Future value

$60,000 1.174241375 $70,454.4825

$70,000 1.113025 $77,911.75

$75,000 1.055 $79,125

$50,000 1 $50,000

Total Future value $277,491.2325

The discount factor is

= (1 + 0.55)^3 + (1 + 0.55)^2 + (1 + 0.55)^1 + (1 + 0.55)^0