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Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,512,000, or it can make annual payments of $289,600 for 15 years, each payment due on the last day of the year. Click here to view factor tables Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period

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jepessoa

Answer:

pay $289,600 for 15 years

Explanation:

we have to compare the present value of both options:

option 1:

pay $2,512,000 immediately, with the same present value

option 2:

pay $289,600 for 15 years

PVIFA, 15 periods, 8% = 8.5595

PV of hte annuity = $289,600 x 8.5595 = $2,478,831

they should choose the second option since the present value is lower.