PLMB Engineering Innovations, Inc. is negotiating to purchase exclusive rights to manufacture and market a solar-powered...
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PLMB Engineering Innovations, Inc. is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car's inventor has offered PLMB the choice of either a one-time payment of K1,500,000 today or a series of 5 year-end payments of K385,000. a) If PLMB has a cost of capital of 9%, which form of payment should it choose? (5 Marks) b) What yearly payment would make the 2 offers identical in value at a cost of capital of 9%? (5 Marks) 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 (5 Marks) d) The after-tax cash inflows associated with this purchase are projected to amount to K250,000/year for 15 years. Will this factor change the firm's decision about how to fund the initial investment? (5 Marks) PLMB Engineering Innovations, Inc. is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car's inventor has offered PLMB the choice of either a one-time payment of K1,500,000 today or a series of 5 year-end payments of K385,000. a) If PLMB has a cost of capital of 9%, which form of payment should it choose? (5 Marks) b) What yearly payment would make the 2 offers identical in value at a cost of capital of 9%? (5 Marks) 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 (5 Marks) d) The after-tax cash inflows associated with this purchase are projected to amount to K250,000/year for 15 years. Will this factor change the firm's decision about how to fund the initial investment? (5 Marks)
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Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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