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Memphic Memphic
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4 years ago
Taggart Transcontinental currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart Transcontinental to skip making the next two payments in lieu of making one large payment at the end of the loan's term in three years. If the interest rate on the loan is 6%, then the final payment that the bank will require to make Taggart Transcontinental indifferent between the two forms of payments is closest to:
A) $2,673,000
B) $3,000,000
C) $3,184,000
D) $3,375,000
Textbook 

Corporate Finance: The Core


Edition: 4th
Authors:
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EgorGruzdevEgorGruzdev
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4 years ago
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C
Explanation:  C) FV = PV(1 + i)N = $1,000,000(1.06)2 + 1,000,000(1.06)1 + 1,000,000 = 3,183,600

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