Question
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:
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 $0.57m 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 buyers gross profit on the product for the next 4 years. Assume that the buyers 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 $210k 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.
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