ST Trucking just signed a $3.8 million contract.The contract calls for a payment of $1.1 million today,$1.3 million one year fromtoday,and $1.4 million two years from today.What is this contract worth today at a discount rate of 8.7 percent?

Question

Quizplus · Accepted Answer

To calculate the present value of the contract, we need to discount the future cash flows using the given discount rate of 8.7%.

PV of contract = ($1.1 million/(1+0.087)^1) + ($1.3 million/(1+0.087)^2) + ($1.4 million/(1+0.087)^3)
PV of contract = $1,013,472.49 + $1,115,354.88 + $1,352,990.00
PV of contract = $3,481,817.37

Therefore, the contract is worth $3,481,817.37 today. Option B is the correct answer.

ST Trucking Just Signed a $3