Frankie's Furniture Mart has contracts from one customer who will pay $4,695 in 5 months and another customer who will pay $7,830 in 7 months. Frankie can sell the contracts today to Vinnie's finance company at a discount rate of 23.5%. How much money will Vinnie pay to Frankie today for the two contracts?
A) $11,162
B) $11,208
C) $12,525
D) $13,705
E) $14,058

Question

Quizplus · Accepted Answer

The correct answer is A.The present value of the first contract is $4,695 / (1 + 0.235)^5 = $3,000. The present value of the second contract is $7,830 / (1 + 0.235)^7 = $4,200. The total present value of the two contracts is $3,000 + $4,200 = $7,200. Vinnie will pay Frankie $7,200 for the two contracts today.

Frankie's Furniture Mart Has Contracts from One Customer Who Will