In: Accounting
Consider the following investment offers regarding a product you have recently developed. A 10% interest rate should be used throughout this analysis unless otherwise specified: Offer (I) – Receive $0.54m now and $193k from year 6 through 15. Also, if your product achieved over $100 million in cumulative sales by the end of year 15, you would receive an additional $3m. Assume that there is a 70% probability this would happen. Offer (II) – Receive 30% of the buyer’s gross profit on the product for the next 4 years. Assume that the buyer’s gross profit margin is 60%. Sales in year 1 are projected to be $2m and then expected to grow by 40% per year. Offer (III) – A trust fund would be set up, calling for semiannual payments of $206k for 8 years. On the 17th period, you would receive the compounded proceeds, which would then be discounted over the 8-year period back to the present at the specified annual rate. Note: The term “k” is used to represent thousands (× $1,000). Required: Determine the percentage difference between your most and least profitable alternatives, with the least profitable option as the basis for your calculation. Answer % Intermediate calculations must be rounded to 3 decimal places (at least). Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).
OFFER 1 | PRESENT VALUE OF 1 @10% | YEAR | CASH FLOW | PRESENT VALUE OF CASH FLOWS | OFFER 2 | SALES | MARGIN 60% | PROFIT 30% OF MARGIN (CASH FLOWS) | PRESENT VALUE OF CSH FLOWS | OFFER 3 | HALF YEARLY | HALF YEARLY | |||
0.909 | 1 | 540000 | 490909.09 | 2000000 | 1200000.0 | 360000.00 | 327272.727 | 206000 | 206000 | ||||||
0.826 | 2 | 540000 | 446280.99 | 2800000 | 1680000.0 | 504000.00 | 416528.926 | 206000 | 206000 | ||||||
0.751 | 3 | 540000 | 405709.99 | 3920000.00 | 2352000.0 | 705600.00 | 530127.724 | 206000 | 206000 | ||||||
0.683 | 4 | 540000 | 368827.27 | 5488000.00 | 3292800.0 | 987840.00 | 674708.012 | 206000 | 206000 | ||||||
0.621 | 5 | 540000 | 335297.51 | TOTAL | 1948637.4 | 206000 | 206000 | ||||||||
0.564 | 6 | 193000 | 108943.47 | 206000 | 206000 | ||||||||||
0.513 | 7 | 193000 | 99039.52 | 206000 | 206000 | ||||||||||
0.467 | 8 | 193000 | 90035.92 | 206000 | 206000 | ||||||||||
0.424 | 9 | 193000 | 81850.84 | TOTAL | 1648000 | 1648000 | |||||||||
0.386 | 10 | 193000 | 74409.85 | ` | PRESENT VALUE OF PROCEEDS | ||||||||||
0.350 | 11 | 193000 | 67645.32 | COMPOUND PROCEEDS | 3296000 | 1537608.33 | |||||||||
0.319 | 12 | 193000 | 61495.75 | 3232000*.467 | |||||||||||
0.290 | 13 | 193000 | 55905.23 | ||||||||||||
0.263 | 14 | 193000 | 50822.93 | ||||||||||||
0.239 | 15 | 193000 | 46202.67 | ||||||||||||
TOTAL SALES | 4630000 | 2783376.35 | |||||||||||||
LEAST OPTION IS OPTION 3RD | |||||||||||||||
1 | % DIFFERENCE BETWEEN OFFER 1 TO OFFER 3 | ||||||||||||||
DIFFERENCE AMOUNT | 2783376.35-1537608.33 | ||||||||||||||
1245768.03 | |||||||||||||||
81.02 | MEANS THERE IS 81.02% MORE RETURN IN OFFER I THAN OFFER III | ||||||||||||||
2 | % DIFFERENCE BETWEEN OFFER 2 TO OFFER 3 |
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throughout this analysis unless otherwise specified:
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Consider the following investment offers regarding a product you have recently developed. A 10% interest rate...Consider the following investment offers regarding a product you
have recently developed. A 10% interest rate should be used
throughout this analysis unless otherwise specified:
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Also, if your product achieved over $100 million in cumulative
sales by the end of year 15, you would receive an additional $3m.
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Offer (II) – Receive 30% of the buyer’s gross...
Consider the following investment offers regarding a product you have recently developed. A 10% interest rate...Consider the following investment offers regarding a product you
have recently developed. A 10% interest rate should be used
throughout this analysis unless otherwise specified:
Offer (I) – Receive $0.51m now and
$190k from year 6 through 15. Also, if your product
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is a 70% probability this would happen.
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