Exercise 6-18 Assume that Sonic Foundry Corporation has a contractual debt outst

Question

Exercise 6-18 Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,009,000, or it can make annual payments of $259,600 for 15 years, each payment due on the last day of the year. Click here to view factor tables Which method of payment do you recommend, assuming an expected effective interest rate of 10% 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.) Present Value of annual payments $ Recommended payment method

Explanation / Answer

Calculate present value :

Option 1 = 2009000

Option 2 = 259600*7.60608 = $1974538

So sonic foundry corporation should annual payment of $259600

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