What is the value today of the publisher’s future payments

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You are writing the great American novel, and have signed a contract with the world's most prestigious publisher. To keep you on schedule, the publisher promises you a $100,000 bonus when the first draft is complete, and another $100,000 following revisions. You believe that you can write the first draft in a year, and have the revisions done at the end of a second year.

a. If interest rates are 5%, what is the value today of the publisher's future payments?

b. Suppose the publisher offers you $80,000 after the first draft and $125,000 following revisions. Is this a better deal than the original offer?

Reference no: EM131335575

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