Lump sum payment lump sum payment

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Reference no: EM131593168

NPV Simes? 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 ?$1,600,000 today or a series of 6 ?year-end payments of ?$380,000.

a. If Simes has a cost of capital of 14?%, the present value of the annuity is ?$_____. (Round to the nearest? dollar.)

Which form of payment should the firm? choose? (Select the best answer? below.)

A. Annuity payment Annuity payment

B. Lump sum payment Lump sum payment

b. The yearly payment that would make the two offers identical in value at a cost of capital of 14?% is ?$_____. ?(Round to the nearest? dollar.)

c. If the yearly payments were made at the beginning of each? year, the present value of the annuity is ?$_____. (Round to the nearest? dollar.)

Which form of payment should the firm choose if the annuity payments are paid at the beginning of each? year? ?(Select the best answer? below.)

A. Annuity payment

B. Lump sum payment

d. The? after-tax cash inflows associated with this purchase are projected to amount to ?$247,000 per year for 15 years. Will this factor change the? firm's decision about how to fund the initital? investment? ?(Select the best answer? below.)

A. ?No, the cash flows from the project will not influence the decision on how to fund the project. The investment and financing decisions are separate.

B. Yes, the cash flows from the project will influence the decision on how to fund the project. The investment and financing decisions are related.

Reference no: EM131593168

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