Eichelberger trucking won a settlement in a lawsuit and was, Ask an Expert

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Eichelberger Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company.The interest rate is 8%. Ignoring the tax considerations, which of the following four alternatives has the highest present value?Support your answer with the appropriate calculations.

(1) $180,000 now.

(2) $52,000 per year for the next 4 years.

(3) $5,000 now and then $24,000 per year for the next 10 years. Hint:calculate the present value of the initial $5,000 separately. Then calculate the present value the $24,000 annuity separately. Finally, add the two present value amounts together to get the overall present value.

(4) $9,100 per year for the next 10 years plus a lump sum payment of $200,000 at the end of the 11th year. Hint: Calculate the present value of the $9,100 10-year annuity separetely. Then calculate the present value of the $9,100 10-year annuity separately. Then calculate the present value the $200,000 payment received at the end of year 11 separately. Finally, add the two present value amounts together to get the overall present value.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9970501

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