A financial company that advertises on television will pay you $56,000 now for annual payments of...

While it is not specifically stated in the problem, we will assume that the annual payments of $9,500 will occur at the beginning of each year, so that the cash flows represent an annuity due.

The formula for the present value of an annuity due is:

where:

• PV = present value
• P = amount of periodic payment
• r = interest rate
• n = number of payments

So, for the legal settlement, the inputs are:

• P = $9,500
• r = 12%
• n = 9

and the formula is:

So, the present value of the legal settlement is $56,693.

Since that amount is greater than the amount offered on TV by the financial company, you would not accept the offer.