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Carrie Tune will receive $33,000 for the next 18 years as a payment for a new...

Carrie Tune will receive $33,000 for the next 18 years as a payment for a new song she has written. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. What is the present value of these payments if the discount rate is 9 percent?

b. Should she be willing to sell out her future rights now for $210,000?

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Answer #1

a)

Present value = Annuity * [1 - 1 / (1+ r)n] / r

Present value = 33,000 * [1 - 1 / (1+ 0.09)18] / 0.09

Present value = 33,000 * [1 - 0.211994] / 0.09

Present value = 33,000 * 8.755625

Present value = $288,935.63

b)

She should NOT sellout her future rights as the present value the cash flows is greater than $210,000.

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