Reference no: EM132760893

Problem 1: You worked as a partner for a small business-consulting firm and you want to leave the company because of a better career option. Based on the partnership agreement, when a partner leaves the firm, his or her ownership in the firm is cashed out with an immediate payment worth 3 percent of last year's revenue. The firm generated a sales revenue of $5 million during last year. However, other partners would rather not have to pay out this big cash flow to you this year because they need the money to expand their business in the next two years. According to the estimation, they can generate a revenue of $7.5 million in two years. Therefore, they provide you with two payment choices: one is to take 3 percent of last year's revenue now, and another option is to take 2.5 percent of the expected revenue two years later. If the discount rate that applies to you is 10 percent, which payment option is optimal?