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 $1,500,000 today or a series of five year-end payments of $385,000. a. If Simes has a cost of capital of 9%, 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 9%? c. Would your answer to part a of this problem be different if the yearly payments were made at the beginning of each year? Show what difference, if any, that change in timing would make to the present value calculation.

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 $1,500,000 today or a series of five year-end payments of $385,000. a. If Simes has a cost of capital of 9%, 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 9%? c. Would your answer to part a of this problem be different if the yearly payments were made at the beginning of each year? Show what difference, if any, that change in timing would make to the present value calculation.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...

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