Answer:
Contract will worth today
Explanation:
Given:
Contract price = $5.0 million
Today payment = $1.25 million
First year payment = $1.75 million
Second year payment = $2.0 million
Discount rate = 7.5% = 0.075
Computation:
[tex]Total \ amount\ received = $1.25 million + $1.75 million(\frac{1}{[1+0.075]^1} ) +2.0 million(\frac{1}{[1+0.075]^2} )\\\\ Total \ amount\ received = $1.25 million + $1.75 million(0.9324) +2.0 million(0.8693) \\\\ Total \ amount\ received = $1.25 million + $1.6317 million +$1.7386 million \\\\ Total \ amount\ received = 4.6203million[/tex]Contract will worth today
