Calculate the present value of the three payments

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Reference no: EM132014144

Suppose one day you were driving along a familiar county road a few hours after a torrential rain storm. All the creeks are full or over-flowing their banks.

As you begin to cross a partially submerged bridge, the bridge gives way. You manage to get to safety but your new truck and trailer are almost a total loss.

The county commissioners refuse to pay for your property loss saying you are a dunderhead for trying to cross under such conditions. You claim they should have known it was a weak bridge and closed the road. You sue in district court and win a $60,000 judgment.

Only trouble is, by law, the county has 3 years to pay you, including interest (set by the court), and the first payment is one year away.

Your lawyer offers you $58,000 if you will "assign" the judgment payments to him. That is, he will buy the stream of payments from you.

You decide that 6% is a reasonable discount rate to use in considering this offer. Calculate the present value of the three payments, then decide if you will accept the $58,000.

Payment 1 (end of year 1) = $20,600

Payment 2 (end of year 2) = $21,200

Payment 3 (end of year 3) = $20,600

Present Value of Payments = ________

Accept the offer? Why or why not?

Reference no: EM132014144

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