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 $0.56m now and $198k 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 $2.1m and then expected to grow by 40% per year. Offer (III) – A trust fund would be set up, calling for semiannual payments of $208k 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 CASH FLOWS | OFFER 3 | HALF YEARLY | HALF YEARLY | |||||
0.909 | 1 | 560000 | 509090.909 | 2100000 | 1260000.0 | 378000.00 | 343636.364 | 208000 | 208000 | ||||||||
0.826 | 2 | 560000 | 462809.917 | 2940000 | 1764000.0 | 529200.00 | 437355.372 | 208000 | 208000 | ||||||||
0.751 | 3 | 560000 | 420736.289 | 4116000.00 | 2469600.0 | 740880.00 | 556634.110 | 208000 | 208000 | ||||||||
0.683 | 4 | 560000 | 382487.535 | 5762400.00 | 3457440.0 | ######## | 708443.412 | 208000 | 208000 | ||||||||
0.621 | 5 | 560000 | 347715.941 | TOTAL | 2046069.3 | 208000 | 208000 | ||||||||||
0.564 | 6 | 198000 | 111765.838 | 208000 | 208000 | ||||||||||||
0.513 | 7 | 198000 | 101605.307 | 208000 | 208000 | ||||||||||||
0.467 | 8 | 198000 | 92368.461 | 208000 | 208000 | ||||||||||||
0.424 | 9 | 198000 | 83971.328 | TOTAL | 1664000 | 1664000 | |||||||||||
0.386 | 10 | 198000 | 76337.571 | ` | PRESENT VALUE OF PROCEEDS | ||||||||||||
0.350 | 11 | 198000 | 69397.792 | COMPOUND PROCEEDS | 3328000 | 1552536.56 | |||||||||||
0.319 | 12 | 198000 | 63088.902 | 3328000*.467 | |||||||||||||
0.290 | 13 | 198000 | 57353.547 | ||||||||||||||
0.263 | 14 | 198000 | 52139.588 | ||||||||||||||
0.239 | 15 | 198000 | 47399.626 | ||||||||||||||
TOTAL SALES | 4780000 | 2878268.55 | |||||||||||||||
THE LEAST PROFITABLE OPTION IS OFFER III | |||||||||||||||||
AND THE MOST PROFITABLE OPTION IS OFFER I | |||||||||||||||||
1 | % DIFFERENCE BETWEEN OFFER 1 TO OFFER 3 | ||||||||||||||||
DIFFERENCE AMOUNT | 2878268.55-1552536.56 | ||||||||||||||||
1325731.99 | |||||||||||||||||
% DIFF | 85.39 | MEANS THERE IS 85.39% MORE RETURN IN OFFER I THAN OFFER III | |||||||||||||||
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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
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Assume that there is a 70% probability this would happen.
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throughout this analysis unless otherwise specified:
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$199k from year 6 through 15. Also, if your product
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is a 70% probability this would happen.
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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:
Offer (I) – Receive $0.58m now and
$190k from year 6 through 15. Also, if your product
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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 $0.54m now and
$199k 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...
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 $0.58m now and $192k 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...
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
achieved over $100 million in cumulative sales by the end of year
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is a 70% probability this would happen.
Offer (II) – Receive 30% of the buyer’s gross...
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have recently developed. A 10% interest rate should be used
throughout this analysis unless otherwise specified:
Offer (I) – Receive $0.51m now and $199k 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...
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