Question

You are hurt in a car accident and your lawyer wins a $100,000 settlement to be distributed as follows: $20,000 immediate payment $5,000 a year for ten years $30,000 after ten years. Of the lawyer's fee is $10,000, what is the value of this settlement if the interest rate is 6 percent

Answer 1

Answer:

The value of the settlement is $ 62,604.06  

Explanation:

The value of the settlement is the present values of all cash flows less lawyer's fees of $10000

In discounting the cash flows, I used the Present Value formula,which is:

PV=FV/(1+r)^n

FV =future value,amount receivable at each point time

r=rate of return=6%

n is the applicable number of years to each future value amount, for instance the $30000 last payment is receivable in the eleventh year,hence n is 11 years

The settlement value is the figure in the excel spreadsheet attached.