Exercise 6-18 Assume that Sonic Foundry Corporation has a contractual debt outst
ID: 2515892 • Letter: E
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 $2,173,000, or it can make annual payments of $265,400 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 9% during the future period? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Present Value of annual payments Recommended payment method V Click if you would like to Showl Payments on: Open Show Work Immediate PaymentExplanation / Answer
Answer
Year
PV of $1 at 9% [1/1.09Year]
1
0.917431193
2
0.841679993
3
0.77218348
4
0.708425211
5
0.649931386
6
0.596267327
7
0.547034245
8
0.50186628
9
0.46042778
10
0.422410807
11
0.38753285
12
0.355534725
13
0.326178647
14
0.299246465
15
0.274538041
Total
8.06069
Present Value of annual Payments
[$265,400 x 8.06069]
$ 21,39,307
Value of $ to be paid now under 1st alternative
$ 21,73,000
Recommended Payment method
Annual Payments, because the present value of future payments is less than present value of immediate payments
Year
PV of $1 at 9% [1/1.09Year]
1
0.917431193
2
0.841679993
3
0.77218348
4
0.708425211
5
0.649931386
6
0.596267327
7
0.547034245
8
0.50186628
9
0.46042778
10
0.422410807
11
0.38753285
12
0.355534725
13
0.326178647
14
0.299246465
15
0.274538041
Total
8.06069