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you win a judgement in an auto accident case for $135,000 you immediately receive $30,000 but...

you win a judgement in an auto accident case for $135,000 you immediately receive $30,000 but must pay your lawyer's fee of $25,000 in addition you will receive $3,500 a year for 20 years for a total of $70,000 after which the balance owed $35,000 will be paid if the interest rate is 7% what is the current value of your settlement? use appendix b and appendix d answer the question round your answer to the nearest dollar.

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Answer #1

Current value = present value of cash inflows - lawyer fee

present value of cash inflows =  present value of $3500 annuity for 20 years + present value of $35,000 received after 20 years

present value of $3,500 annuity for 20 years = $3,500 * PVAF(7%, 20), where PVAF is the present value annuity factor. The value of PVAF(7%, 20) is found to be 10.594014 from the annuity tables. Present value = $3500 * 10.594014 = $37,079.05

present value of $35,000 received after 20 years = $35,000 * PVF(7%, 20), where PVF is the present value factor. The value of PVF(7%, 20) is found to be 0.2584 from the annuity tables. Present value = $35,000 * 0.2584 = $9,044

present value of cash inflows =   $37,079.05 + $9,044 = $46,123.05

Current value = $46,123.05 - $25,000 = $21,123.05

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