Answer to Question #252747 in Economics for maraya

Question

G&G Consulting has just realized an accounting error that has resulted in an unfunded liability of $455,950 due in 35 years. In other words, the company will need $455,950 in 35 years. Dave Green, 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 9 percent, what is the present value of the liability? 

Answer 1

2. The present value of the liability is:

$PV = 455,950/1.09^{35} = 22,335.$