Question

During a recession, the price of goods and services goes down because of low demand. a company that makes ethernet adapters is planning to expand its production facility at a cost of $1,200,000 1 year from now. however, a contractor who needs work has offered to do the job for $830,000 provided the company will do the expansion now instead of 1 year from now. if the interest rate is 11% per year, how much of a discount is the company receiving?

Answer 1

Answer:

The answer is: $251,081

Explanation:

To calculate how much money the company is saving you must first determine the present value of $1,200,000 (the cost of doing the work in one year) discounted by 11%.

Present value = $1,200,000 / 1.11 = $1,081,081

The amount saved is PV - actual cost = $1,081,081 - $830,000 = $251,081