NPVSimes Innovations, Inc., is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car's inventor has offered Simes the choice of either a one-time payment of $2,000,000 today or a series of 7 year-end payments of $375,000.

a.If Simes has a cost of capital of 13%, which form of payment should it choose?

b.What yearly payment would make the two offers identical in value at a cost of capital of 13%?

c.What would be your answer to part a of this problem if the yearly payments were made at the beginning of each year?

d.The after-tax cash inflows associated with this purchase are projected to amount to $243,750 per year for 16 years. Will this factor change the firm's decision about how to fund the initital investment?