Your company just sold a product with the following payment plan: $50,000 today,$25,000 next year,and $10,000 the following year.If your firm places the payments into an account earning 10% per year,how much money will be in the account after collecting the last payment?
A)$99,000
B)$98,000
C)$88,500
D)$85,000

Question

Quizplus · Accepted Answer

First, we need to find the future value of each payment.

For the payment of $50,000 today, the future value is simply $50,000.

For the payment of $25,000 next year, the future value is:

$25,000 x 1.10 = $27,500

For the payment of $10,000 the following year, the future value is:

$10,000 x 1.10 x 1.10 = $12,100

Now, we can find the total future value of all three payments:

$50,000 + $27,500 + $12,100 = $89,600

Therefore, after collecting the last payment, there will be $89,600 in the account.

The closest answer choice is B) $98,000, which is not correct. The correct answer is actually $89,600.

Your Company Just Sold a Product with the Following Payment