Reference no: EM132043902

Question: A foreign government has stolen U.S. military's star wars program component and hence the U.S. military is trying to counter that stolen component (technology) with a more sophisticated component. It has asked all the U.S. scientists to come up with one (better component) within 2 years. The U.S. military promised a fixed annual payment of $2 million each for the first ten annual payments (first payment will occur exactly two years from today (Year 2), and the last payment will occur in Year 11) and then they promised to increase that payment by 2% each year annually (starting the eleventh payment. i.e. Year 12) for the next thirty payments. In other words, the eleventh payment (in Year 12) will be $2.04 million and so on. If we assume an interest rate of 4%, what is the present value of this offer to any scientist who takes this challenge? The military also promised that these payments will be federal tax exempted!