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Question A: Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment

Question A:

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $1,948,000, or it can make annual payments of $251,800 for 15 years, each payment due on the last day of the year. 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 Immediate or Annual?

Question B:

Newman Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, Newman has developed the following estimates.

Engine Overhaul Estimated Cash Outflow

Probability Assessment

$340 10%
480 30%
840 50%
750 10%

How much should Newman Bowie deposit today in an account earning 9%, compounded annually, so that he will have enough money on hand in 5 years to pay for the overhaul? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Despot Amount:

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