Ms. Landis is the president of Modern Manufacturing. Her company has developed a new 3D printer for use in the construction industry. She has received three offers to purchase this 3D printer technology, as follows: a payment of $500,000 now, followed by annual payments of $120,000 at the end of years 6 through 15. a payment of $900,000 today a series of semiannual payments of $80,000 spread over the next 10 years. The first payment will be received today and the remaining payments will come at the beginning of each semiannual period. Using a required rate of return of 12% per year, calculate the present value of each of the three offers. Based on your answers to part A, which of the three offers should be accepted? That is, which has the largest present value? If the required rate of return were increased to 15% per year, would that change the decision about which offer to accept? Which offer should be accepted at the higher required rate of return?
Ms. Landis is the president of Modern Manufacturing. Her company has developed a new 3D printer for use in the construction industry. She has received three offers to purchase this 3D printer technology, as follows: a payment of $500,000 now, followed by annual payments of $120,000 at the end of years 6 through 15. a payment of $900,000 today a series of semiannual payments of $80,000 spread over the next 10 years. The first payment will be received today and the remaining payments will come at the beginning of each semiannual period. Using a required rate of return of 12% per year, calculate the present value of each of the three offers. Based on your answers to part A, which of the three offers should be accepted? That is, which has the largest present value? If the required rate of return were increased to 15% per year, would that change the decision about which offer to accept? Which offer should be accepted at the higher required rate of return?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Ms. Landis is the president of Modern Manufacturing. Her company has developed a new 3D printer for use in the construction industry. She has received three offers to purchase this 3D printer technology, as follows:
- a payment of $500,000 now, followed by annual payments of $120,000 at the end of years 6 through 15.
- a payment of $900,000 today
- a series of semiannual payments of $80,000 spread over the next 10 years. The first payment will be received today and the remaining payments will come at the beginning of each semiannual period.
- Using a required
rate of return of 12% per year, calculate thepresent value of each of the three offers. - Based on your answers to part A, which of the three offers should be accepted? That is, which has the largest present value?
- If the required rate of return were increased to 15% per year, would that change the decision about which offer to accept? Which offer should be accepted at the higher required rate of return?
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