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    Comparing two alternatives of payment for debt settlement

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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 $2,600,000 or it can make annual payments of $300,000 for 15 years, each payment due on the last day of the year.

    Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?

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    Solution Summary

    Solution describes the steps in evaluating two payment options to clear a debt by PV method.