Question & Answer: 2.12 Electric car maker Gentech signed a $75 million contract with Power Systems, Inc. to automate a major part of its assem…..

2.12 Electric car maker Gentech signed a $75 million contract with Power Systems, Inc. to automate a major part of its assembly line system. If Power Systems will be paid 2 years from now when the systems are ready, determine the present worth of the contract at 18% per year interest.

2.12 Electric car maker Gentech signed a $75 million contract with Power Systems, Inc. to automate a major part of its assembly line system. If Power Systems will be paid 2 years from now when the systems are ready, determine the present worth of the contract at 18% per year interest.

Expert Answer

 

Present value=$75 million*Present value of discounting factor(rate%,time period)

=$75 million/1.18^2

=$53,863,832.23(Approx)([please note that intermediate calculations have not been rounded off].

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