Question

$6 million contract. The contract calls for a payment of $1.2 million today, $1.5 million one year from now, $1.5 million two years from now, and $1.8 million three years from today. What is this contract really worth if Ramon can earn 10.5 percent on his money

Answer 1

the present value is $5.12 million

Step-by-step explanation:

The computation of the present value is shown below:

As we know that

Present value = Cash flows × Present value of discounting factor (rate% and duration)

= $1.2 million + $1.5 million ÷ 1.105 + $1.5 million ÷ 1.105^2 + $1.8 million ÷ 1.105^3

= $5.12 million

Hence, the present value is $5.12 million

We simply applied the above formula so that the correct value could come

And, the same is to be considered