Question

Sunbeam Company  just signed a sales contract with a new customer. It  will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings?

Multiple Choice

• $443,571.88

• $348,457.72

• $412,264.53

• $431,417.66

• $424,786.07

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=50,000*(1.0375)^3+96,000*(1.0375)^2+123,000*(1.0375)+138,000

=$424,786.07(Approx).