Question

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $35,000, $39,000, $80,000, and $120,000 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 5.7 percent, what is the value of the settlement offer today

Answer 1

The value of the settlement today = $231,897.79

Step-by-step explanation:

The value of the settlement today is the sum of the present value (PV) of cash inflows discounted at the discount rate of 5.7 %.

Year PV

1 35,000 × 1.057^(-1) = 33112.58

2 39,000× 1.057^(-2) = 34907.16

3. 80,000× 1.057^(-3) = 67743.09

4 120,000 × 1.057^(-4) =96134.94

The Pv of the total cash in flow =33,112.58 + 34,907.17 + 67,743.09 + 96,134.95 = 231,897.79

The value of the settlement today = $231,897.79