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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Question
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 $1,600,000
today or a series of 6 year-end payments of $365,000.
today or a series of 6 year-end payments of $365,000.
__________________________________________________________________________
a. If Simes has a cost of capital of 12%,the present value of the annuity is $________
b. The yearly payment that would make the two offers identical in value at a cost of capital of 12% is $ ___________(Round to the nearest dollar.)
c.If the yearly payments were made at the beginning of each year, the present value of the annuity is $_____________.
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