Answer:
The correct answer is $503,098.
Explanation:
According to the scenario, the given data are as follows:
Payment 1st year = $187,000
Payment 2nd year = $220,000
Payment 3rd year = $245,000
Rate of interest = 13.5%
So, We can calculate the amount Southern Tours willing to pay by using following formula:
We add the payment for 3 years by simple interest as:
= [tex]\frac{payment (1st year)}{1+r^{t1} }[/tex] + [tex]\frac{payment (2nd year)}{1+r^{t2} }[/tex] + [tex]\frac{payment (3rd year)}{1+r^{t3} }[/tex]
= [tex]\frac{187,000}{1+0.135 }[/tex] + [tex]\frac{220,000}{1+0.135^{2} }[/tex] + [tex]\frac{245,000}{(1+0.135)^{3} }[/tex]
= $503,098
Hence, the amount Southern Tours willing to pay is $503,098.
