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Chapter 4: Q16BP (page 282)

Carrie Tune will receive \(19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for \)160,000?

Short Answer

Expert verified

Carrie Tune should not sell the future rights at $160,000.

Step by step solution

01

Identification of the required information

Payment (PMT) = $19,500

Period (n) = 20 year

Interest Rate (i) = 10%

02

Current value (PV)

PV=PMT脳1-1+i-ni=$19,500脳1-1+10%-2010%=$166,014.49

03

Final Decision

Carrie Tune should not be willing to sell his future rights at $160,000 because the present value of the future rights, $166,014.49, is greater than $160,000.

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