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The present worth of the two contracts is determined to be $

The present worth of the two contracts is determined to be $

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Civil engineering consulting firms that provide services to outlying communities are vulnerable to a number of factors that affect the financial condition of the communities, such as bond issues, real estate developments, etc. A small consulting firm entered into a fixed- price contract with a spec home builder, resulting in a stable income of $315,000 per year in years 1 through 8. At the end of that time, a mild recession slowed the development, so the parties signed another contract for $180,000 per year for 4 more years. Determine the present worth of the two contracts at an interest rate of 15% per year. The present worth of the two contracts is determined to be $
Transcribed Image Text:Civil engineering consulting firms that provide services to outlying communities are vulnerable to a number of factors that affect the financial condition of the communities, such as bond issues, real estate developments, etc. A small consulting firm entered into a fixed- price contract with a spec home builder, resulting in a stable income of $315,000 per year in years 1 through 8. At the end of that time, a mild recession slowed the development, so the parties signed another contract for $180,000 per year for 4 more years. Determine the present worth of the two contracts at an interest rate of 15% per year. The present worth of the two contracts is determined to be $
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Present worth of a contract is the value it possess in current period by considering the discounted values of all future expected cash flows associated with the contract.

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