Carrie will receive $20,000 a year for the next 20 years as a result of the...
Carrie will receive $20,000 a year for the next 20 years as a result of the new song she has written. If a 10% rate is applied as an opportunity rate of return, should she be willing to sell out her future rights now for $180,000?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=20,000[1-(1.1)^-20]/0.1
=20,000*8.51356372
=$170271.27(Approx).
Hence since present value of $180,000 is greater than present value of annual inflows;future rights must be sold now.
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