1. A court settlement awarded an accident victim four payments of $50,000 to be

Question

1. A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years. Using a discount rate of 4%, calculate the present value of the annuity.

2.

Which form of business structure faces the greatest agency problems?                                                                                                                                                

sole proprietorship

limited partnership

general partnership

corporation

                                       

sole proprietorship

                                       

limited partnership

                                       

general partnership

                                                

corporation

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Part A:

Methodology 1:

Present Value of Annuity = 50000/(1+.04)^1 + 50000/(1+.04)^2 + 50000/(1+.04)^3 + 50000/(1+.04)^4 = 181494.76 or 181495

Answer is 181494.76 or 181495.

Methodology 2:

Present Value of Annuity = 50000*PVIFA (4%,4Years) = 50000*3.6299 = 181495

Part B:

Option D (Corporation) is the correct answer.

Thanks.

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