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During a recession, the price of goods and services goes down because of low demand. A...

During a recession, the price of goods and services goes down because of low demand. A company that makes Ethernet adapters is planning to expand its production facility at a cost of $1,200,000 1 year from now. However, a contractor who needs work has offered to do the job for $830,000 provided the company will do the expansion now instead of 1 year from now. If the interest rate is 9% per year, how much of a discount is the company receiving?

The discount that the company is receiving is $

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Answer #1

Discounted value of expansion facility = Future value /1+r

=$1,200,000/1+9%

=$1,200,000/1+0.9

=$1,200,000/1.09

=$1,100,917

Discount received =$1,100,917-$830,000

=$270,917

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