I need help in finance!

[mygirl46360]

Mr. Rambo, President of Assault Weapons, Inc., was pleased to hear that
he had three offers from major defense companies for his latest missile
firing automatic ejector. He will use a discount rate of 12 percent to
evaluate each offer.

Offer I
$500,000 now plus $120,000 from the end of year 6 through
15. Also, if the product goes over $50 million in cumulative
sales by the end of year 15, he will receive an additional
$1,500,000. Rambo thought there was a 75 percent probability
this would happen

Offer II (Comprehensive time value of money)
Twenty-five percent of the buyer’s gross margin for the next
four years. The buyer in this case is Air Defense, Inc. (ADI). Its
gross margin is 65 percent. Sales for year 1 are projected to be
$1 million and then grow by 40 percent per year. This amount
is paid today and is not discounted.

Offer III
A trust fund would be set up for the next nine years. At the end
of that period, Rambo would receive the proceeds (and
discount them back to the present at 12 percent). The trust
fund called for semiannual payments for the next nine years of
$80,000 (a total of $160,000 per year). The payments would
start immediately. Since the payments are coming at the
beginning of each period instead of the end, this is an annuity
due. To look up the future value of the annuity due in the
tables, add 1 to n (18 + 1) and subtract 1 from the value in the
table. Assume the annual interest rate on this annuity is 12
percent annually (6 percent semiannually). Determine the
present value of the trust fund’s final value.
Required: Find the present value of each of the three offers and
then indicate which one has the highest present value.

 

[tkhunny]

You MUST learn basic principles.

i = 0.12
v = 1/(1+i) = 1/1.12

Offer I
$500,000 now plus $120,000 from the end of year 6 through 15. Also, if the product goes over $50 million in cumulative sales by the end of year 15, he will receive an additional $1,500,000. Rambo thought there was a 75 percent probability this would happen

\(\displaystyle 500000 + 120000 \cdot \left(v^{6} + v^{7} + v^{8} + ... + v^{15} \right) + 1500000*0.75*v^{15}\)

That's all it takes. Now add it up. Let's see what you get.

Offer II (Comprehensive time value of money)
Twenty-five percent of the buyer’s gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 65 percent. Sales for year 1 are projected to be $1 million and then grow by 40 percent per year. This amount is paid today and is not discounted.

g = 0.40
r = 1+g = 1.40

\(\displaystyle 1000000*0.65*0.25*\left(1 + r + r^{2} + r^{3}\right)\)

Seriously, if you work hard at "Basic Principles" you can just write these things down without hesitation. It takes PRACTICE. Don't shy away from it. You also need enough algebra to be able to add them up.

You show us the third one.