skip to Main Content

The smarter way
to do assignments.

Please note that this is just a preview of a school assignment posted on our website by one of our clients. If you need assistance with this question too, please click on the Order button at the bottom of the page to get started.

COMPREHENSIVE PROBLEM 3 GENERAL WEAPONSGeneral Weapons, Inc. (Comprehensive time value of money)Mr. Rambo, President of General 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 10 percent to evaluate each offer.OfferI$1,600,000 now plus $825,000 from the end of years 6 through 15. Also if the product goes over $60 million in cumulative sales by the end of year 15, he will receive an additional $3,000,000. Rambo thought there was an 80 percent probability this would happen.Offer IIThirty percent of the buyers gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 70 percent. Sales for year 1 are projected to be $3.75 million and then grow by 35 percent per year. This amount is paid today and is not discounted.Offer IIIA trust fund would be set up for the next four years. At the end of that period, Rambo would receive the proceeds (and discount them back to the present at10 percent). The trust fund called for semiannual payments for the next four years of $150,000 (a total of $300,000 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, where n is the number of periods, and subtract 1 from the value in the table. Assume the annual interest rate on this annuity is 10 percent annually (5 percent semiannually). Determine the present value of the trust funds final value.Required: Find the present value ofeachof the three offers and then indicate which one has the highest present value.OfferI$1,600,000 now plus $825,000 from the end of years 6 through 15. Also if the product goes over $60 million in cumulative sales by the end of year 15, he will receive an additional $3,000,000. Rambo thought there was an 80 percent probability this would happen.Offer IIThirty percent of the buyers gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 70 percent. Sales for year 1 are projected to be $3.75 million and then grow by 35 percent per year. This amount is paid today and is not discounted.Offer IIIA trust fund would be set up for the next four years. At the end of that period, Rambo would receive the proceeds (and discount them back to the present at10 percent). The trust fund called for semiannual payments for the next four years of $150,000 (a total of $300,000 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, where n is the number of periods, and subtract 1 from the value in the table. Assume the annual interest rate on this annuity is 10 percent annually (5 percent semiannually). Determine the present value of the trust funds final value.Required: Find the present value ofeachof the three offers and then indicate which one has the highest present value.

GET HELP WITH THIS ASSIGNMENT TODAY

Clicking on this button will take you to our custom assignment page. Here you can fill out all the additional details for this particular paper (grading rubric, academic style, number of sources etc), after which your paper will get assigned to a course-specific writer. If you have any issues/concerns, please don't hesitate to contact our live support team or email us right away.

How It Works        |        About Us       |       Contact Us

© 2018 | Intelli Essays Homework Service®