Simes Innovations, Inc., is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car's inventor has offered Simes the choice of either a one-time payment of $1,700,000 today or a series of 6 year-end payments of $400,000. a. If Simes has a cost of capital of 13%, which form of payment should it choose? b. What yearly payment would make the two offers identical in value at a cost of capital of 13%? c. What would be your answer to part a of this problem if the yearly payments were made at the beginning of each year? d. The after-tax cash inflows associated with this purchase are projected to amount to $260,000 per year for 15 years. Will this factor change the firm's decision about how to fund the initital investment?
Simes Innovations, Inc., is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car's inventor has offered Simes the choice of either a one-time payment of
$1,700,000
today or a series of
6
year-end payments of
$400,000.
a. If Simes has a cost of capital of
13%,
which form of payment should it choose?
b. What yearly payment would make the two offers identical in value at a cost of capital of
13%?
c. What
would
be your answer to part a of this problem if the yearly payments were made at the beginning of each year?
d. The after-tax
$260,000
per year for 15 years. Will this factor change the firm's decision about how to fund the initital investment?
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