Question

Elam, a contractor, just signed a contract with a developer to provide services in a new home development. The developer has agreed to pay Elam $15,000 up front (today) 30,000 in two years and another $50,000 five years from today. Elam anticipates costs of $7,000 three years from today and another $25,000 eight years from today. What is the total value of the contract to Elam if the interest rate is 3.7%

Answer 1

Total present value $59,620.10

Step-by-step explanation:

The computation of the total value is shown below:

Year Cash flow PVF at 3.7% Present value

0 $15,000 1 $15,000

1 0 0.9643 $0

2 $30,000 0.9299 $27,897

3 -$7,000 0.8967 -$6,276.90

4 $0 0..8647 $0

5 $50,000 0.8339 $41,695

6 $0 0.8041 $0

7 $0 0.7754 $0

8 -$25,000 0.7478 -$18,695

Total present value $59,620.10