The manufacturing company considered as a fair return

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Reference no: EM13741132

A manufacturing company purchased electrical services for the next 5 years to be paid for with $70,000 now. The service after 5 years will be $15,000 per year beginning with the sixth year. After 2 years service the company, having surplus profits, requested to pay for another 5 years service in advance. If the electrical company elected to accept payments in advance, what would each company set as a fair settlement to be paid if:

a. the electrical company considered 15% compounded annually as a fair return and

b. the manufacturing company considered 12% as a fair return?

Reference no: EM13741132

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