Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $ 398 comma 930 due in 28 years. Toni Flanders, the company's CEO, is scrambling to discount the liability to the present to assist in valuing the firm's stock. If the appropriate discount rate is 7 percent, what is the present value of the liability?

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Business

Wall

15 April, 12:03

Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $ 398 comma 930 due in 28 years. Toni Flanders, the company's CEO, is scrambling to discount the liability to the present to assist in valuing the firm's stock. If the appropriate discount rate is 7 percent, what is the present value of the liability?

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Mitzi · Answer 1

Present value of Liability is $59,989

Explanation:

Money does not have the same value in future as it has today. The present value calculates the today's value of any that cash flow will be made in future.

Liability = FV = $398,930

Number of years = n = 28 years

Discount rate = r = 7%

Present value = FV / (1 + r) ^n

Present value = $398,930 / (1 + 0.07) ^28

Present value = $398,930 / 6.65

Present value = $59,989.47