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 $320,000 per year in years 1 through 4. At the end of that time, a mild recession slowed the develop­ment, so the parties signed another contract for $150,000 per year for two more years. Determine the present worth of the two contracts at an interest rate of 10% per year.

Question

What will be an ideal response?

Answer 1

P = 320,000(P/A,10%,4) + 150,000(P/A,10%,2)(P/F,10%,4)
= 320,000(3.1699) + 150,000(1.7355)(0.6830)
= $1,192,170