Question 1 (Total of 12 marks)

Emelia Jackson was announced as the winner ofMasterChef Australia: Back To Winin 2020.To capitalise on her success, she is looking to expand her signaturefinancier(French almond cake) mix into major supermarkets.Emelia can sell the recipe to White Wingsfor $500,000 payable immediately for commencement of production.Alternatively, she can accept $28,000 every six months in royalties for the next 10 years.

(a)

Ifshe can earn 3.9% per annum compounded semi-annually, which offer is to her financial advantagetoday? Show all calculations that support your answer.

(b)

Diana Chan (winner from Season 9), who supplies her own frozen dumplings to all major supermarkets, suggested that Emelia should explore the opportunity of growing her own artisan brand.Using Diana's referral, Emelia needs $280,000 in 9 months to start her own business.Calculate the amount she needs to deposit today if she can earn 10.5% compounded monthly.Will herMasterChefprize money of $250,000 be sufficient for this purpose?

(c)

Based on your calculations, suggest whether Emelia should sell her recipe to White Wings or start her own business.Explain your recommendation briefly.

(2 marks)