Chegg, I am having trouble with this particular question. The question was alrea

Question

Chegg, I am having trouble with this particular question. The question was already answered by another representative from Chegg. He or she used a table, but I have trouble following and understanding it. By reading the question, can you identify the Present Value (PV), Future Value (FV), Annuity Payment (PMT), Number of Years (n), Interest Rate (i) if there are any? Can you tell me what formula is being used? Also, how did the individual come up with the calculations related to salary of next 3 years (year 3, 4, and 5)? Also, which one is the answer? Is it Present Value of the next year cash flow 518,338.5769 or Present Value of future salary payment 318338.6?

As you can see, I am confused and have a lot of questions that needs to be answered. Would any representative from Chegg mind if they solved the problem over again with those answers, but show their work by not using a table because I get confused with tables, if I am being honest. The more work you show (step by step), it helps me to understand the problem more cleary and approach it in the future. I really hate to be annoying and overwhelm with you a lot of work, but I have a professor who is very picky and likes work to be shown and be clear. It is very important for me to answer this question for a test that is due tomorrow? You would be a life saver. Thank you and enjoy your day.

Question:

We win a judgement of $200,000 now for pain and suffering. The defendant will have to pay us next year. Additionally, he will have to pay us our salaries for 5 years. The salary 2 years ago was $100,000. The increase is 4% yearly. We deserve 3 more salaries for the next 3 years. Derive the payment he will have to give us next year, if the discount rate is 5%. Assume all data occur at the end of the year.

Expert Answer

somesh.ca@rediffmail.com answered this 1 hour later

amount of salary 2 years ago $100,000 amount of salary at the end of today's time $100,000 (1 + 0.04)2 $108,160 Future Value (FV) of payment calculations related to salary of next 3 years lum sum amount next year 200,000 year 3 112486.4 107129.9 salary payment for next 3 years $318,338.58 year 4 116985.856 106109.6 amount to be received in next 518338.5769 year 5 351137.5462 318338.6 sum of next 3 years salary 351137.5462 318338.6 Present Value of the next year cash flow 518,338.5769 Present Value of future salary payment 318338.6

Explanation / Answer

* PV is computed assuming payment point is 1 year hence from now. PV = Present value, FV = Future value

Year DF at 5% PV of CF* -2 Salary 2 years ago $100,000 0 Amount of salary as on today $100,000 (1 + 0.04)2 = $108,160 F.V. DF @5% P.V.* 1 Lump sum amount to be paid by defendent, next year Lump sum $ 200,000 1.0000 $200,000 1 Salary payment 1 year hence $108,160 x 1.04 = $112,486 1.0000 $112,486 2 Salary payment 2 year hence $112,486 x 1.04 = $116,985 0.9524 $111,414 3 Salary payment 3 year hence $116,985 x1.04 = $121,665 0.9070 $110,354 Present Value after one year of all payments $534,254

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