Silly Cat Training (SCT), a cat training school, is being sued by the parents of a child who was bitten by a cat in the custody of SCT. Two out-of-court settlements are under consideration. Under the first, SCT would pay the injured party $100,000 per year for 10 years, with the first payment one year from today. Under the second alternative, SCT would pay the injured party $100,000 today and $1,000,000 ten years from today. In your report, describe which of these offers is best from SCT’s perspective, assuming a 2.5 percent interest rate? Present value of 1st settlement: $100,000 per year for ten years Present value of 2nd settlement: $100,000 today and $1,000,000 ten years from today
Silly Cat Training (SCT), a cat training school, is being sued by the parents of a child who was bitten by a cat in the custody of SCT. Two out-of-court settlements are under consideration. Under the first, SCT would pay the injured party $100,000 per year for 10 years, with the first payment one year from today. Under the second alternative, SCT would pay the injured party $100,000 today and $1,000,000 ten years from today. In your report, describe which of these offers is best from SCT’s perspective, assuming a 2.5 percent interest rate?
Present value of 2nd settlement: $100,000 today and $1,000,000 ten years from today
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