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Calculate the presumed future value after thirty years

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Reference no: EM132831058

A recent contract reported a total purchase price of $1B. Presume the contract allows payment made either as a single discounted payment in the first year or as a series of payments over the life of the contract (30 years). The two options are;

  • (one make a single $619M lump sum payout, or two) make an annual payment of $36M each year for thirty years.
  • The first option implies an interest rate. Presume the same interest rate would apply to the second option as well.

Problem 1: Using the above information, calculate:

a) the interest rate (or rate of return) implied by the offer of the lump sum payment.
b) the presumed future value after 30 years of the annual payment, if the second option was selected.
c) discuss advantages and disadvantages for each which option.

Reference no: EM132831058

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