Complete the contract and pay them a lump sum settlement now

Assignment Help Financial Management

Reference no: EM13763903

Three years ago, Sam purchased a farm on contract from an older lady for $149,000 at 7% interest over 15 years. The lady died unexpectedly and the heirs would like Sam to pay off the contract now, which has a current remaining balance of $130,000 with 12 annual payments of $16,367. They can’t force Sam to pay immediately because of the contract which runs for 12 more years, but they do want their inheritance money now. Sam’s lender said he would finance the payoff with a loan at 10% interest. What is the most Sam should offer to pay the heirs to complete the contract and pay them a lump sum settlement now? (Note: this same problem could also be set up by asking How much of a discount, from the $130,000 remaining on the contract, must the heirs accept in order to get their money today instead of waiting for their payments over the next 12 years, if the current interest rate is 10%?)

Reference no: EM13763903

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