You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%,what is this job worth to you today?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the annuity is $180,238.81. This is calculated by multiplying the annual payment of $50,000 by the present value factor for an annuity of 5 years at a discount rate of 12%. The present value factor is 3.604776, which is calculated as follows:PVF = 1 / (1 + r)^nPVF = 1 / (1 + 0.12)^5PVF = 3.604776Therefore, the present value of the annuity is:PV = PMT * PVFPV = $50,000 * 3.604776PV = $180,238.81

You Have a Sub-Contracting Job with a Local Manufacturing Firm