Exercise 6-19 Assume that Sonic Foundry Corporation has a contractual debt outst
ID: 2334189 • Letter: E
Question
Exercise 6-19
Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,145,000, or it can make annual payments of $265,400 for 15 years.
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Payments must begin now and be made on the first day of each of the 15 years, what payment method would you recommend assuming an expected effective-interest rate of 9% during the future period? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Immediate PaymentAnnual Payments
Explanation / Answer
As payments are made on the first day of each year, it is Annuity due.
PVAF = 1 + PVAF of 9% for 14 years.
= 1 + 7.786
= 8.786
Present value of annual payment 2,331,804.4 (265,400*8.786) Recommended payment method Immediate payment